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What happened? Reuters / WSJ reported yesterday after market that Bentley Systems, the US-based engineering software company with a market value of c. USD 16bn, is exploring options that include a sale, after a number of companies, including Schneider Electric and Cadence Design Systems, expressed interest in a deal. Just this morning Schneider has issued a press release confirming that it is ''holding discussions with Bentley Systems with regards to a potential strategic transaction.'' Sources said other bidders, including Siemens (which held talks to buy Bentley Systems in 2020), could emerge. Siemens pension scheme holds a stake in Bentley Systems and signed a strategic alliance in 2016. It reportedly has a right to bid for Bentley if Bentley holds talks with a potential acquirer. Bentley chose to IPO in 2020 after deal talks with Siemens failed to progress. The Bentley family controls Bentley Systems through a special class of shares. It is reported that the company has formed a special committee of its board to explore options including an outright sale as well as a JV. Bentley Systems makes software to manage engineering projects for infrastructure, design, and construction industries. It has more than 5,200 employees in over 40 countries. In 2023, Bentley Systems generated adjusted operating income (inc. stock-based compensation) of USD 325m at a margin of 26.4% and free cash flow of USD392mn at a FCF margin of 32%. Accordingly, it trades on rich multiples (c46x EV/EBIT24E; 44.0x EV/EBITDA24E using Visible Alpha estimates). BNPP Exane View: The news that Schneider could be interesting in bidding for Bentley will likely come as a surprise to many of the French Company''s investors. Schneider''s CEO Peter Herweck took on the role at the beginning of last year. Since then, he has spoken at a number of events, including last November''s Capital Markets Day. On each occasion to our ears he has emphasised how happy he is with the current Schneider...
Schneider Electric Schneider Electric SE
We refresh our Schneider Eletric presentation pack to include bull, base, and bear scenarios.
Ahead of Q1 reporting (25th April) we move to update our forecasts for Schneider. In particular we cut our Q1 organic sales growth to reflect a slower than previously anticipated start to Industrial Automation. Post FY results Consensus modelled IA to deliver organic sales growth of +0.6% in Q1, whereas we now see IA sales down -9% in the quarter. Despite this change in our Q1 forecasts, we leave our expectations for the full year broadly unchanged. Industrial Automation: Discrete slow start in Q1; Process still conducing the SaaS transition While our forecasts for the full year remain broadly unchanged, we now move to model a more H2 weighted volume trajectory for Industrial Automation''s Discrete businesses (c. 15% of Group sales). We also understand that AVEVA''s SaaS transition will continue to impact sales growth in Q1. As a result we now model an organic sales decline at IA of -9% in Q1 (post FY results Consensus for IA sat closer to 1% growth). We see some risk of a low double-digit decline for IA in Q1. Limited impact to FY24e group numbers After modelling a slower start to 2024 for IA, we now see Q1 organic sales growth of around 4% (vs Consensus at around 6%). Despite this, we continue to forecast Group organic sales growth for FY24e for 7% (the middle of the Company''s guidance range). Updating numbers; TP stays at EUR240 We update our estimates for recent trading. Our target price is EUR240/s.
Schneider''s ambitious target for a 4-year organic sales CAGR of 7-10% was met with scepticism; Sell Siders are now downgrading the name. So is the journey over? We don''t think so. We reassess the outlook for the Firm''s key end markets and find that Data Centres and India could contribute over 1/3 and 1/4 of sales growth respectively through to 2027. We conclude that Schneider can deliver growth within the target range in 2024 and 2025. Our new approach to forecasting key end markets drives a more granular SOTP-based TP of EUR240. In a Bull Case where Schneider achieves EUR50bn in sales, the shares could rise to EUR300 by 2026, suggesting 40%+ upside.
A mixed Q3; strong Energy Management, weakening Industrial Automation Schneider delivered a mixed Q3. Group organic growth in the quarter came in at 11.5%; 56bps ahead of Consensus. Energy Management drove the beat with organic sales growth of 13.5%, c. 220bps ahead. The beat was driven by North America and Rest of the World, with small misses to growth in Western Europe and Asia Pac. Industrial Automation missed Consensus with organic sales growth of only 4.8%, c. -500bps light of Consensus. Both Europe and Asia Pac delivered significantly weaker performances. Backlog still growing, but FY24e Consensus for Industrial Automation likely to be cut Despite the strong EM Q3 sales growth and the emergence of pockets of weakness across IA, the Group''s overall backlog continues to build, buoyed by Systems order intake (Datacentres and MV). This news, at a time when other companies'' backlogs are already shrinking should be taken well by investors as it is supportive of Group Consensus estimates for FY24e. Although faster Systems growth is likely to weigh on the Company''s margin (poorer mix). We''d now expect Consensus to start to model a slower progression for IA in FY24e. CMD: Will they upgrade their growth expectations just as the world starts to slow down? The Company will hold a CMD on November 9th; the first under new CEO Peter Herweck. We expect the event will address capital allocation, sales growth, and margin ambitions. The current organic sales growth target (+5% to +8%) runs to 2024; the Company also has a through-cycle ambition of 5% pa. Peers such as Eaton have talked of future growth above 5%; we wonder whether Schneider management will feel comfortable in matching such ambitions ahead of a potential cyclical slowdown in H1 2024. Updating numbers; TP stays at EUR190 We update our estimates for recent trading and to reflect the latest FX. Our target price is EUR190/s.
Schneider Electric’s Q3 revenues slightly missed the company-compiled consensus but were ahead of them on organic growth. This miss is largely attributable to Industrial Automation, considering that Energy Management was in line with expectations. The currency headwinds were also slightly stronger than expected. The organic growth was positive in all regions and most end-markets. With this result, the group confirmed its 2023 targets. Given the recent correction in the stock, we believe the next quarter could throw up a buying opportunity.
Solid H1 PandL, cash below Consensus - but no need to revise FY23e FCF expectations Group Q2 organic sales growth of 14.8% was 140bps ahead of Consensus. A beat at Energy Management was the driver of this. H1 operating EBITA was in line, the margin was 18.0% (10bps ahead of Consensus). The small margin beat was partly thanks to a central cost line which was below Consensus; divisional margins were both 10bps light of the Street''s expectations. H1 FCF was EUR820mn, well below Consensus. As mentioned in our preview, this doesn''t mean FY23e FCF estimates need to come down, only that the Street''s H1 vs. H2 split wasn''t weighted enough towards the back half of the year. FY23 guidance upgraded; needs a rise in IA OEM intake by Q4 to support FY24 IA numbers Management upgraded its FY23e guidance. Organic sales growth is now seen at +11% to +13% (previously 10% to 13%). Pre-results Consensus sat at 11.7%. This year''s adjusted EBITA margin is seen up organically by +120bps to +150bps (previously 100bps to +130bps). The FX headwind to margins is now seen as -80bps (up from -70bps). Guidance for the adjusted EBITA margin rises to 17.7% to 18.0% (previously 17.6% to 17.9%). Pre-results Consensus sat at 17.9%. At the mid-point, new guidance brings management expectations in line with pre-results Consensus. The Company''s backlog is now said to provide six months of PandL visibility. Many will wonder ''what happens beyond that?'' Will weaker discrete OEM demand stabilise before the IA backlog is depleted? The CEO stated that management expects OEM demand to improve by Q4 - including in China. Such a scenario would be supportive of FY24e estimates for Industrial Automation. November CMD will be in focus when we return from the summer break The Company will hold a CMD in November; the first under new CEO Peter Herweck. We expect the event will address capital allocation, sales growth, and margin ambitions. The current organic sales growth target (+5% to +8%) runs...
Schneider Electric’s H1 23 results were broadly in line with the company-compiled consensus except organic growth which slightly beat expectations. As expected, organic growth was sequentially lower with a higher contribution from pricing than volume. All regions registered good organic growth with Energy Management outpacing Industrial Automation. The gross profit and adjusted EBITA margin expanded due to strong pricing. CFO improved slightly, whereas FCF generation was better thanks to improved working capital. Lastly, the group has modestly raised its 2023 outlook.
A sales beat, driven by Energy Management; Asia Pac weaker than expected The Group delivered 15.8% organic sales growth in Q1, 440bps ahead of the Street. Both divisions contributed to vthis, although Energy Management far more than Industrial Automation. Asia Pac was weak for both divisions. Group B2B is said to still be above 1x. Thus, at the Group level Schneider is still building the backlog. ARR 16%. Field Services +14%. Guidance upgraded; FX headwind limits upside to Consensus margin Guidance for FY23e was raised at both the sales and headline EBITA levels. However, the Consensus margin was already close to the mid-point of the new guided for margin range, so any upgrade to Consensus is likely to be mainly the result of the higher sales guidance, which is an extra 200bps at the mid-point. The message on margins was supressed by new guidance for an FX headwind to margins of c. 70bps (previously 40bps). FY23e sales guidance and Q1 pricing implies healthy volume growth in H2 During the conference call the CFO commented that volumes grew at c. 5% YoY in Q1. Implying price/ mix was c. 10-11%. In terms of the outlook for pricing throughout the coming quarters, she stated that while inflation is easing, the environment is still good for raising prices. And that Schneider will continue to price to protect its gross margin. Looking at the new guidance for FY23e organic sales growth (11% to 13%) and in the context of Q1 YoY volumes of 5%, it seems as though the new guidance implies healthy YoY volume growth in H2. Updating estimates; TP at EUR180/s We update our estimates for recent trading and latest FX. Our target price remains EUR180/s.
Schneider Electric dealt a consensus beat on its Q1 revenues and organic growth. This beat was driven by the Energy Management business, whereas Industrial Automation was in line. The demand was good across most end-markets and geographies. Another highlight worth noting was the very strong growth in the group’s Systems business. On the back of this strong Q1 result, the group upgraded its 2023 revenue and margin ambitions. However, a stronger headwind from currency fluctuations negates much of the upside.
Q4 PandL slightly ahead; H2 FCF strong Schneider delivered a 6% Q4 Sales beat, thanks to a beat by Energy Management. Group organic sales growth came in at 16%, some 750bps ahead of the Street. The H2 operating profit margin was 17.9% (10bps below Consensus), but adj. EBITA came in 2% ahead thanks to the better top line. Second half FCF came in at EUR2.9bn, c. 18% stronger than Consensus. A new boom? Guidance - exciting message on top line growth, but margin headwinds exist Guidance on sales was significantly better than the Street had modelled for FY23e (+9% to +11% organic sales growth vs. Consensus at only +2.8%). The message followed that from Siemens; while PMIs have weakened, Electricals'' end markets appear to be booming. Margin guidance was below consensus (17.4% to 17.7% vs. Consensus at 17.8%) due to FX and MandA headwinds of up to 40bps and 30bps respectively. The implied upgrade to Consensus adjusted EBITA is therefore only c.3%. A new broom: Change of management - implications, especially for strategy Schneider announced that Jean-Pascal Tricoire will step down from the role of CEO and retain his position as Chairman. The outgoing CEO of AVEVA, Peter Herweck, will take up the Schneider CEO seat. During the Q4 conference call, a couple of analysts went fishing around the content of the upcoming 2023 CMD. We note that it will take place in Q4 of 2023, giving Herweck enough time to get up to speed and develop his strategic message. Ahead of the event, many may wonder whether the Company will announce a new savings programme. When asked about the Group''s long-term margin potential, CEO Tricoire stated that progress will now come from mix and ongoing productivity savings. While he didn''t signal a new programme, we would highlight that over the past 20 years Schneider ran a series of performance improvement initiatives which tended to include an element of savings (ONE, Connect, Schneider is on etc...); such actions appear to be part of...
Schneider Electric’s 2022 results delivered a strong beat on organic growth with marginal beats on revenues and adjusted EBITA courtesy of another solid showing in Energy Management. Organic growth in IA was good too. The group also made good progress on its digital flywheel targets laid out at its last CMD, completed its divestment programme and delivered targeted structural savings. Most importantly, the group announced the separation of the Chairman & CEO roles. For 2022, the board’s dividend proposal is €3.15.
A sales beat, but mostly thanks to pricing Schneider''s Q3 sales came in 3.6% ahead of Consensus, with organic sales growth of 12.1%, 240bps ahead. However, the beat was driven by a strong pricing progression, rather than an exciting volume growth story. Excluding the drag effect from Schneider''s Russian operations, volumes in Q3 were up 2.5%; including the declines in Russia, volumes were only flat YoY. Guidance for FY22e seems to imply little-to-no YoY volume growth in Q4 Guidance for FY22e was left unchanged. Group organic sales growth guidance of 9-11% in FY22e implies management expects to deliver a Q4 organic sales growth between the wide range of 4.3-11.6%. The mid-point of the range (8.0%) is bang in line with pre-results Consensus. As of Q4, Schneider''s Russian operations will move from organic activities to the scope effect line of the Group''s sales bridge. Group volumes will no longer be held back by Russian business declines; however, after witnessing the strength of Schneider''s YoY pricing in Q3, we would suggest that an Q4 organic sales print of 8% (as per Consensus) would imply little-to-no volume growth in the final quarter of the year. Given the purported size of the Group''s current backlog (said by the CFO to be at a record level) we would hope for a YoY rise in volumes during Q4. Guidance for FY22e margin appears cautious - could still surprise positively Management expects Schneider to be net price positive this year, but that even so it now sees full year margins at the low end of its 17.7% to 18% guidance range. While the Street already sits at 17.7% this news was probably mildly disappointing to some investors. It could be that the message on H2 margins was designed to keep a lid on Consensus into FY22e results; perhaps an attempt to ensure a profit beat for H2. We struggle to hold our FY22e margin forecast down at 17.7% whilst simultaneously modelling no fall in volumes and a net positive price contribution to EBITA....
º Strong 3Q22 organic growth of volumes thanks to the diversified end-market exposure of Schneider Guidance confirmed, sale of Télémecanique for EUR723m EV to finance Aveva take-over
Schneider Electric’s Q3 revenues and organic growth beat consensus and our estimates. Both divisions registered similar organic growth with good demand across all end-markets and all geographies except Russia. Its digital flywheel comprising Services, Software and Sustainability grew well and the group expects to continue making good strides in this area. In this quarter, the group also reached its divestment target laid out in 2019 and divested its Russian operations. Following the release, the group confirmed its previously revised outlook.
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