Smart Home, rebirth of domotics

The 1970s concept of domotics has returned with a vengeance with the advent of smartphones and connected speakers, this time under the generic term of the Smart Home. However, whereas the domotics market was historically somewhat disappointing, the smart home market is taking off in Europe and in North America: +c50% (estimated) a year since 2014 and +c30% expected in volume over 2018-2020 (based on Berg Insight data). These figures are coherent with the performances posted by the connected products divisions of Legrand and Somfy, which respectively generated annual sales growth of 28% over 2014-18 and 25% (organic) in 2018.
Underpinned by more reliable and accessible technologies, the smart home market is driven by solid fundamental trends with the search for comfort and security, energy savings and answers to Silver Economy issues, even though brakes exist in terms of prices, perceived complexity, the multiplicity of offers and protocols, inertia in the building sector, not to mention respect of people's private life. However, players in the sector, especially Legrand and Somfy, are multiplying partnerships and innovations and are aiming to offer open systems to remain in the running in a market (the home) that is naturally part of their ecosystem. They are therefore legitimate in this segment.
Under this framework, we are initiating coverage of Legrand with a Neutral recommendation (FV of EUR70) and Somfy at Buy (FV of EUR100), with both groups well positioned in the market. In terms of size, the impact will probably be more noticeable for Somfy, whose entire business is destined to meet expectations in smart home further out. This exposure to a booming market is a key argument, whereas uncertainty surrounds the global macro situation and could penalise stocks that are perceived as being more cyclical such as Legrand. No change to Buy recommendation on Schneider, but FV updated EUR90 vs EUR84.