By:
Kevin Blank, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Schneider Electric (OTC:SBGSY) is a global specialist in energy
management, electrical distribution, and industrial engineering equipment. The
company offers integrated products and solutions across four markets
(non-residential and residential buildings, utilities and infrastructure,
industry and machine manufacturers, and data centers and networks).
• Schneider Electric is
answering customer’s needs on how best to take advantage of today’s speedy digital
world.
• The recent announcement
of collaborating with Microsoft by using Azure in Schneider’s EcoStruxure
architecture will accelerate the delivery of cloud-based applications.
• The company is focused
on disciplined value-accretive M&A to grow core business areas.
Key
points: Schneider Electric’s market leader position in the key
applications in distributed information technology, data centers, and non-IT
applications creates long term drivers for growth. The company operates across
200 countries and growth areas include increased installed base for battery
energy storage systems, internet traffic, edge computing IoT devices, and cloud
data centers.
Cloud-based applications deployed
by IT and automation companies drive plants, buildings, people and asset
optimization. Partnering with Microsoft in addition to Accenture, Intel, Cisco,
IBM, and Salesforce allows for significant upside in the IoT space. 45% of
revenues relate to IoT. Schneider’s EcoStruxure digital platform delivers
business value through apps, edge control, and connected products on-site and
in the cloud. Demand for IT and business automation solutions continues to grow
and Schneider’s total addressable market expanded from 60B euro to 300B euro.
The building business
segment grew 3.8% in Q1 with China responsible for double-digit growth.
Non-residential construction markets are a large influence for Schneider
Electric. Europe and North America construction markets could have a strong
2017, increasing low voltage products and systems (switchboards, circuit
breakers, cabling and interfaces) and medium voltage distribution
(transformers). New trends in power generation are moving towards a
technological evolution through microgrids, energy storage, and renewable
energy.
Although M&A is not
necessary, management has stated potential M&A to strengthen leading
positions in the core business areas (power, building, and software). The
company has also generated 1.4B euro in cash from disposals of non-core
businesses.
What
has the stock done lately?
SBGSY has hovered around
$13 – $14 with a recent spike after Schneider Electric posted a positive 1Q17
sales report on April 20th, showing organic growth across all
business segments. This news resulted in a 3.55% increase. April has been a
strong month for Schneider with a $900M sale of DTN, a data software business
that distributes real-time weather information to farmers and other customers.
Schneider said proceeds from the deal will be used in a share buyback of about
1B euro and recover from other acquisitions. The month of April posted an 8.77%
increase in share price.
Past
Year Performance: The stock has increased 20.53% over the
past year. The 52-week range is $10.92 - $16.15. Schneider posted $1.93B net
income in 2016 which increased from $1.55B in 2015 although revenues decreased
largely due to foreign currencies depreciating against the euro.
Source:
FactSet
My
Takeaway
The age of digitization
in the energy markets is catching up globally and Schneider Electric’s end
markets are becoming more electric, digitized, and automated. Schneider’s
ability to partner with leading IT and automation companies increases their
knowledge base in determining customer’s needs. System and solution engineers can
integrate and design product capabilities with strong alliances. I expect
Schneider Electric to continue to be a leader worldwide and strengthen core
businesses through M&A.
Source: FactSet
