The Corporate Restructuring Report-Pentair Plc (PNR) & nVent Electric Plc (NVT) Spin-off
On April 30th, 2018, Pentair Plc (NYSE:PNR) is expected to complete the spin-off of its electrical business into a separate publiccompany, nVent Electric Plc (NVT). The parent will retain the water business. The spn-off is anticipated to be tax-free and was announced on May 9th, 2017. Each PNR shareholder will receive one share of NVT for each PNR share held as of the record date of April 17, 2018. The companies commenced when-issed trading on April 17th, 2018. The psin-off makes sense given the lack of synergy between the two businesses. In addition, the electrical segment is more cyclical and volatile (given exposure to the energy markets and commercial construction) than the water business.
PNR's key end markets are poised to grow, consistent with US Gross GDP levels with the potential for accelerated growth if currently favorable secular trends develop further. We expect solid performance in residential & commercial filtration, engineered pump. and aquatics business. Attractive margin profile, strong free cash flows, and high recurring revenue stream (~70%) provide flexibility for tuck-in acquisitions to bolster growth. Looking to 2018, the company should see tailwinds from ongoing productivity and lower interest expense. We believe the positives are fully realized in current valuation and see limited catalysts to drive the stock in the near term.
nVent will be a pure play electrical business with industry leading brands, attractive margin profile and strong cash flows. The key verticals are all expected to grow in low to mid-single digits, which should support revenue growth. While material inflation remains a concern, it is likely to be offset by accelerating productivity and moderating pricing headwinds.
Of the two, we prefer NVT owing to more upside potential. In our view, PNR (ex-NVT) is fairly valued and NVT is undervalued.
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