Legrand's Primarily Nondiscretionary Product Portfolio Should Provide a Cushion to Slowing Demand

Legrand posted a solid third quarter; however, it also indicated likely negative volume growth in the fourth quarter by sticking to a full-year 2022 6%-9% organic revenue growth. The firm booked 10% organic growth in the first nine months but mainly from price increases. The carry over from the progressively higher price increases in the first three quarters could be around 10% in the fourth quarter, which means that even at the 9% upper end of 2022 guidance, management expects negative volume growth in the fourth quarter. This is not surprising to us. We have been expecting a slowdown and factored in less than 2% organic growth in 2023. We think Legrand has some defensiveness against a general economic slowdown as the product portfolio does not consist of a lot of discretionary items. Electrical components that can save energy or back up power supply equipment will continue to be in demand even if on a more normalized level. We maintain our narrow moat rating and EUR 83 fair value estimate. Shares look attractive.