North American Data Centers And Broadband Will Advance Smart Infrastructure

Key Takeaways

• Expansion into high-growth markets and acquisitions in adjacent segments are strengthening Rexel's access to strategic sectors and enhancing long-term earnings resilience.
  
• Digital sales adoption and emphasis on value-added services are boosting customer retention, operational efficiency, and supporting margin expansion.
  
• Weak European markets, competitive pressures, limited differentiation, unchanged margins on large projects, and high financial leverage threaten Rexel's growth, earnings resilience, and investment potential.

Catalysts

Engages in the distribution of low and ultra-low voltage electrical products for the residential, commercial, and industrial markets in France, rest of Europe, North America, and the Asia-Pacific.

• Rexel's accelerating exposure to fast-growing markets like data centers and broadband infrastructure in North America, supported by both organic growth and targeted M&A, is expected to drive higher volumes and top-line growth, capitalizing on the long-term global shift towards electrification, digitalization, and smart infrastructure.
  
• The ongoing rollout and adoption of Rexel's digital sales channels (now at 34% of group sales and 43% in Europe) and digital procurement capabilities are enabling improved operational efficiencies and customer retention, which should result in better productivity, enhanced net margins, and structurally higher earnings over time.
  
• Rexel's increased focus on value-added services (e.g., system design, project support, advanced logistics, and energy solution offerings) is deepening customer relationships and supporting margin resilience, positioning the company to benefit from customers' growing needs around electrification, energy transition, and smart building solutions.
  
• Portfolio optimization and geographic diversification through acquisitions in higher-margin adjacencies and system integration (such as Jacmar, TECNO BI, Talley, and Apex) are expanding Rexel's access to faster-growing segments and improving earnings resilience, which may not be fully reflected in current valuations.
  
• Sustained labor shortages, increased complexity in energy and automation projects, and regulatory pressure for sustainability are driving end customers to rely more on distributors like Rexel, supporting structurally higher revenues and services-driven margin expansion as customers increasingly outsource technical support and logistics.

Rexel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rexel's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.3% today to 4.1% in 3 years time.
• Analysts expect earnings to reach €879.6 million (and earnings per share of €2.94) by about July 2028, up from €247.6 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.5x on those 2028 earnings, down from 32.7x today. This future PE is lower than the current PE for the GB Trade Distributors industry at 76.4x.
• Analysts expect the number of shares outstanding to decline by 1.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.75%, as per the Simply Wall St company report.

Rexel Future Earnings Per Share Growth

Risks

• Prolonged weakness in the European market, characterized by declining sales, challenging macroeconomic conditions (particularly in Germany and the UK), and persistent underabsorption of fixed costs, risks depressing Rexel's revenue growth and compressing group net margins.
  
• Intensified competition from local suppliers and weaker demand in China and APAC, as highlighted by double-digit sales declines and margin compression, threaten further revenue shortfalls and jeopardize earnings growth in these regions.
  
• Limited structural differentiation in value-added services and digital platforms versus larger, more digitalized peers may restrict Rexel's ability to escape price competition, particularly as product commoditization and price transparency in electrical distribution intensify, putting sustained pressure on net margins.
  
• Increasing exposure to large projects such as data centers brings volume benefits but, as acknowledged, does not meaningfully improve gross or EBITA margins due to high competitiveness and similar cost-to-serve, limiting the potential for significant margin expansion despite sector growth.
  
• Elevated financial leverage following recent acquisitions and share buybacks, compounded by higher interest expenses and exceptional fines, increases vulnerability to interest rate or refinancing shocks and limits balance sheet flexibility, potentially constraining earnings resilience and the ability to invest in long-term growth initiatives.

Valuation

• The analysts have a consensus price target of €27.955 for Rexel based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €33.0, and the most bearish reporting a price target of just €18.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €21.5 billion, earnings will come to €879.6 million, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of €27.41, the analyst price target of €27.95 is 1.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.