Morningstar | Legrand Posts In-Line 2018; Shares Fairly Valued
Legrand posted full-year results that were in line with our forecasts but modestly better than consensus on the EBIT margin. Revenue grew 5% organically, with a boost in the fourth quarter, and the EBIT margin expanded 20 basis points to 20.2%. Management's guidance range for 2019 is in line with our forecasts. We are maintaining our narrow moat rating and EUR 54 fair value estimate. The shares appear fairly valued to us.Full-year organic revenue growth came in at 4% at the group level. The company's largest European market, France, turned in better results in the fourth quarter than the rest of the year with 4% growth for the quarter and 1% growth for the year. In the third quarter, Legrand and Geberit flagged France as showing signs of a turn in the construction cycle towards slower growth, so fourth-quarter performance was a positive surprise. Italy also posted an uptick in growth in the fourth quarter. However, the French market is still seemingly showing signs of potentially sluggish growth in 2019, according to management's comments during the earnings call.
Management's guidance for 2019 builds in some caution, with the floor on group-level organic growth set at 0% on a range of 0%-4% and the margin floor implying a potential 30-basis-point contraction, from a range of negative 30 basis points to positive 50 basis points. While the shares rallied on the back of the results, we think this is overdone, as the outlook is largely the same as when the company reported third-quarter earnings.
Legrand is a global specialist in electrical and digital building infrastructure based in France. Co. offers a full range of control-and-command, cable management, energy distribution and "Voice-Data-Image" products and systems which are suitable for the international commercial, industrial, and residential segments of the low voltage market. Co. markets its products under internationally recognized general brand names, including Legrand and Bticino. Each product group is marketed in all of Co.'s major geographic markets (France, Italy, Rest of Europe, USA/Canada and Rest of the World).
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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