On Thursday, Barclays (LON:BARC) initiated coverage on Rexel SA (RXL:FP) (OTC: RXLSF), a company specializing in the distribution of electrical supplies, with an Overweight rating and a price target of €28.00. The firm's assessment reflects a mix of challenges and opportunities facing the company, with a significant portion of its sales tied to the construction sector, which is currently experiencing a soft market backdrop.
Rexel's exposure to construction accounts for 72% of its group sales, and while the company benefits from its approximately 60% non-residential exposure in North America, which provides leverage to large-scale projects, it is not entirely shielded from weaker volumes in other regions. The remaining 28% of Rexel's sales are linked to industrial markets, which have shown more resilience. However, the company is not immune to the ongoing industrial automation destocking in the US and China, which has been a drag on growth.
Despite these challenges, Barclays suggests that concerns about deflation in Rexel's core electrical distribution business, especially after the second-quarter results, might be exaggerated. This view is supported by supplier pricing commentary, indicating that the fears are unwarranted.
Barclays anticipates that Rexel will achieve roughly flat organic sales growth in 2024, aligning with both Barclays' and consensus estimates of around 0%. This expectation is based on the assumption that the company will benefit from easier comparisons in the second half of the year. Looking beyond the immediate future, Barclays foresees Rexel transitioning towards its medium-term growth potential starting in 2025.
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