Morningstar | Not Much to Fault With Schneider's 2Q; Shares Look Attractive
Schneider posted a solid second quarter with demand coming through in all of the company's segments, driving 7% group organic revenue growth and a resuscitation of the medium-voltage division's revenue growth. The group first-half EBITA margin expanded by 30 basis points year on year to 14.4%, with contribution from a gross margin improvement in the medium-voltage division, where restructuring efforts seem to be showing their benefits. The company increased its 2018 organic revenue and EBITA growth guidance by 100 and 200 basis points, respectively, which suggests some conservatism in our forecasts, particularly on margin. We expect to make minor changes to our EUR 80 fair value estimate and believe the shares are attractively priced. We retain our wide moat rating.One of the important second-quarter and long-term drivers for the medium-voltage division's revenue was software-driven energy-management systems, such as those for grid automation and microgrid products, which can help smooth out end-user energy supply, as growth of renewables on the supply side and energy-intensive equipment like electric vehicles on the demand side leads to increased volatility in the supply. Medium-voltage revenue grew by 3% in the second quarter following a 3% decline in the first quarter.
Industrial automation remains the fastest-growing segment in the quarter and for the medium term in our forecasts. This segment includes a variety of components and software that can deliver productivity improvements across several end markets. First-half division revenue grew by 10%, and we forecast high-single-digit growth for the medium term for that division, or just over 2 times our group-level forecasts.
For the full year, reported group revenue will be influenced by a mix of currency and acquisition effects, in addition to organic growth, which the company expects to be 5%-6% for revenue and 7%-9% for EBITA. We believe reported revenue and EBITA growth will be slightly lower.
Schneider Electric is engaged in energy management. Co. is organized into four areas: Buildings and Partner, Infrastructure, Industry and IT; and operates in four principal markets: non-residential & residential buildings, utilities & infrastructure, industry & machine manufacturers and data centers & networks. The non-residential and residential buildings market includes end-users, property developers, design firms, and systems integrators. The utilities and infrastructure market includes energy operators. The industries market serves end users and companies, and engineering firms. The data centers and networks contain servers that process and store digital data in secure rooms.
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