Morningstar | Legrand's Markets Slowing With the Cycle but Narrow Moat Remains Intact
Legrand is well positioned to take advantage of growth in building and home automation systems, but not without facing new competition in some of those products from consumer electronic companies. The heart of Legrand’s product portfolio is a full suite of components necessary to supply electricity to a building or home, as well as front-of-the-wall peripherals. Building and home automation essentially deploys systems using software and control panels to link up lighting, power, audio, heating, and air conditioning, as well as appliances and other machines, to be centrally controlled by a user from a control panel, an iPad, or another wireless device. Legrand's competitive advantages come from its relative size and strong market position. The company’s research and development budget of almost 5% of sales is at the high end of that of its global peers, and certainly larger than that of its local peers. In nearly two thirds of its product portfolio, Legrand makes the best-selling or second best-selling product in each category. In its strongest markets, such as France and Italy, Legrand commands significant influence over the wholesale distributors. Its popularity among electricians in those markets creates demand for its products, which sets up a mutual dependency with electrical wholesalers that are well served by distributing popular brands. We think Legrand can use these advantages to gain wider distribution of its newly developed or acquired automation products.There are many small companies developing automation products, including various device manufactures. The challenge for Legrand will be picking winning products to support through its advantageous position with wholesalers. The best-positioned products will be those that are less commoditized, tie in most closely with Legrand’s own automation systems, and become essential to a customer’s building operations. Based on the company’s investments so far, we think it is on the right track.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).
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