Electrification And Digital Expansion Will Power Secular Growth

Key Takeaways

• Exposure to electrification, infrastructure, and advanced digital sales positions Rexel for outperformance and structurally higher, multi-year revenue growth versus industry trends.
  
• Ongoing cost actions, AI adoption, and strategic M&A strengthen margins and earnings stability, while ESG and smart building shifts create higher-margin, recurring revenue opportunities.
  
• Ongoing market weakness, digital lag, competitive pressures, cost volatility, and supply chain issues threaten Rexel's profitability, margins, and growth prospects across key regions.

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.

• Analyst consensus expects modest ongoing share gains and margin optimization, but the accelerating double-digit growth in North American data center and broadband infrastructure exposure-segments underpinned by multi-decade secular electrification and infrastructure investment-suggests Rexel could capture a much larger share of a structurally expanding market, fueling a steeper revenue and EBITDA trajectory than anticipated.
  
• While analysts broadly acknowledge digital sales and AI-led productivity as efficiency drivers, Rexel's digital penetration-already over one third of group sales and 43% in Europe-shows an advanced platform that, combined with ongoing cost actions and AI adoption, may unlock sustained net margin expansion, structurally resetting profitability higher as digital share increases.
  
• The surge in electrification initiatives such as EV infrastructure, heat pumps, and grid modernization is materially ramping, and Rexel's strengthened footprint across North America, and leading market share in France, positions it to disproportionately benefit as regulatory and customer investment shifts from cyclical to secular, driving structurally higher multi-year revenue growth well above industry GDP.
  
• Rexel's extensive portfolio of value-added services-ranging from logistics optimization to technical support and system integration-combined with its leadership in connected, energy-efficient, and green product offerings, positions the firm for outperformance as ESG-driven procurement and smart building adoption accelerates, creating higher-margin recurring revenues and long-term earnings stability.
  
• Sector consolidation and ongoing strategic M&A, supported by robust free cash flow and strong liquidity, enables Rexel to rapidly scale, absorb smaller digital laggards, and rebalance its portfolio toward higher-growth, higher-margin markets, converting future industry fragmentation into significant operating leverage and earnings accretion.

Rexel Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Rexel compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Rexel's revenue will grow by 3.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.3% today to 4.5% in 3 years time.
• The bullish analysts expect earnings to reach €988.7 million (and earnings per share of €3.3) by about August 2028, up from €247.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, down from 30.9x today. This future PE is lower than the current PE for the GB Trade Distributors industry at 78.4x.
• 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 8.88%, as per the Simply Wall St company report.

Rexel Future Earnings Per Share Growth

Risks

• Prolonged weakness in European construction markets, with management noting persistently negative growth figures and no clear signs of imminent recovery, could result in structurally lower revenues and sustained fixed-cost underabsorption, impacting overall profitability.
  
• Slower progress in digital transformation versus top peers, as evidenced by only 34% of sales being digital and management acknowledging ongoing productivity/resource optimization programs, could erode market share and limit revenue growth in an industry shifting to automated and digitized distribution models.
  
• Heightened competitive pressures and ongoing margin erosion in key markets like Germany and the UK, where Rexel's profitability remains below group average and cost restructuring is still underway, indicate ongoing risk to net margins and region-specific earnings.
  
• Rising price volatility and input cost fluctuations in product categories such as steel piping, cable, and solar, combined with management's acknowledgement of challenging deflationary impacts and difficulty passing on prices, threaten gross margins and earnings stability.
  
• Exposure to global supply chain disruptions and regulatory shifts-shown by China's double-digit sales decline, loss of share to local competitors, and difficulties in passing through cost increases-could result in further revenue losses and lower net income in growth and emerging markets.

Valuation

• The assumed bullish price target for Rexel is €33.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Rexel's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• 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 bullish analysts, you'd need to believe that by 2028, revenues will be €21.8 billion, earnings will come to €988.7 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of €25.93, the bullish analyst price target of €33.0 is 21.4% higher.
  
• 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.