Who are Schneider Electric
Schneider Electric is a multinational corporation specializing in energy management and automation solutions. The company was founded in 1836 by Adolphe and Eugene Schneider in France. It has since grown into a global leader in its field, operating in over 100 countries and employing around 135,000 people.
The company focuses on helping customers manage their energy and automation needs sustainably and efficiently. The company’s solutions cover various industries and sectors, including buildings, data centers, infrastructure, industries, and utilities.
Schneider Electric’s products and services include everything from circuit breakers and switchgear to energy management systems and industrial automation software. The company also offers consulting and advisory services to help customers optimize their energy consumption and reduce their carbon footprint.
In recent years, Schneider Electric has committed significantly to sustainability, aiming to become a net-zero company by 2025 and help its customers achieve their sustainability goals. The company has been recognized for its efforts in this area, receiving numerous awards and accolades for its sustainability initiatives.
Schneider Electric’s Business Model
Schneider Electric is a global leader in energy management and automation solutions. The company provides many products and services that help customers manage their energy usage, reduce costs, and improve efficiency. Schneider Electric operates in four main segments: Energy Management, Industrial Automation, Secure Power, and Electrical Distribution.
The Energy Management segment provides energy distribution and efficiency solutions, including building automation, monitoring, and control systems. The Industrial Automation segment provides automation solutions for various industries, such as oil and gas, food and beverage, and automotive. The Secure Power segment offers critical power and cooling solutions for data centers and other mission-critical facilities. The Electrical Distribution segment provides electrical distribution and control solutions in residential, commercial, and industrial applications.
Schneider Electric’s business model is built on product innovation, service excellence, and customer focus. The company invests heavily in research and development to create new products and technologies that help customers reduce their energy consumption and improve efficiency. Schneider Electric also provides a wide range of services, including consulting, installation, and maintenance, to help customers get the most out of their energy management and automation solutions.
One of the strengths of Schneider Electric’s business model is its focus on sustainability. The company is committed to reducing its own environmental impact and helping its customers do the same. Schneider Electric has set ambitious goals for reducing its greenhouse gas emissions and increasing the use of renewable energy in its operations. The company also works closely with its customers to help them reduce their own environmental impact through energy management and automation solutions.
Industry Trends
Schneider Electric operates in energy management and automation solutions, subject to several key trends and drivers.
- Sustainability: One of the biggest industry trends is the increasing focus on sustainability. Governments, businesses, and consumers seek to reduce their environmental impact and improve energy efficiency. This trend drives demand for Schneider Electric’s energy management solutions, which help customers reduce their energy consumption and improve their sustainability performance.
- Digitalization: The increasing digitalization of industrial processes is another key trend in the industry. As more companies seek to automate and optimize their operations, they turn to solutions like Schneider Electric’s industrial automation systems. These systems can help companies improve their productivity, quality, and safety while reducing costs and minimizing downtime.
- Electrification: Another trend in the industry is the increasing electrification of various sectors, such as transportation and building systems. This trend drives demand for Schneider Electric’s electrical distribution solutions, which help customers manage and control their electrical systems more efficiently.
- Decentralization: The trend towards decentralization also affects the industry, as more customers seek to generate their own electricity using renewable energy sources like solar and wind. This trend drives demand for Schneider Electric’s energy storage solutions, which can help customers store excess energy and use it when needed.
- Cybersecurity: As industrial processes become more digital and connected, cybersecurity is becoming increasingly important. Schneider Electric invests heavily in cybersecurity solutions to help customers protect their systems and data from cyber threats.
Competitors
Schneider Electric operates in diverse markets, providing energy and automation solutions for buildings, data centers, industry, and infrastructure. As a result, it faces competition from various companies across different industries. Here are some of Schneider Electric’s main competitors in each of its major business segments:
- Buildings: Schneider Electric competes with companies such as Honeywell, Siemens, Johnson Controls, and Carrier in the building automation and control market.
- Data centers: Schneider Electric faces competition from companies such as Vertiv, ABB, Eaton, and Rittal in the data center infrastructure market.
- Industry: Schneider Electric’s main competitors in the industrial automation market include Siemens, ABB, Emerson Electric, and Rockwell Automation.
- Infrastructure: Schneider Electric competes with companies such as General Electric, Siemens, ABB, and Eaton in the infrastructure and energy management markets.
It’s worth noting that these companies are not necessarily direct competitors across all of Schneider Electric’s markets and products. Other companies may compete with Schneider Electric in specific niches or geographies. Additionally, the competitive landscape in these markets can change as new technologies emerge and companies enter or exit the market.
Competitive Advantages
Schneider Electric is a global company with a presence in over 100 countries, giving it a significant advantage over its competitors in reach and scale. This global presence allows Schneider Electric to serve its customers better and leverage economies of scale in sourcing, manufacturing, and distribution.
The company has a diverse product and service portfolio spanning multiple markets, including buildings, data centers, industry, and infrastructure. This diversity helps the company weather economic fluctuations and shifts in demand across different markets.
In recent years, Schneider Electric has strongly emphasized sustainability, which has helped to differentiate it from its competitors and appeal to customers looking for environmentally responsible solutions. The company has set ambitious targets for reducing its environmental impact. It offers a range of products and services that help customers reduce their energy consumption and carbon footprint. This focus on sustainability also positions Schneider Electric well to capitalize on the growing demand for renewable energy and energy efficiency solutions.
Balance Sheet
A company’s balance sheet provides investors, analysts, and creditors with information on its assets, equity, and liabilities. It also indicates cash flows from inventories and receivables and information about their assets’ future earning capacity. A strong balance sheet is important for a sustainable dividend.
Total assets have steadily increased from €41.8 billion in 2016 to €58.3 billion in 2022 due to strategic investments in research, development, and acquisitions. Meanwhile, liabilities increased from €21.2 billion in 2016 to €32.2 billion in 2022, mainly driven by long-term debt. Despite this, Schneider Electric’s long debt-to-equity ratio has remained stable at around 65%.
We calculate a company’s net debt divided by its EBITDA (earnings before interest, tax, depreciation, and amortization) to find its debt relative to its earnings. Schneider Electric has a net debt to EBITDA of 1.8, its highest level over the last ten years.
However, Schneider Electric has maintained a strong interest coverage ratio over the past five years, indicating the company is generating enough operating income to cover its interest expenses. In 2022, the company’s interest coverage ratio was 33x, reflecting its strong financial position and ability to service its debt obligations.
Quite often, a company acquires another company and pays a price exceeding the acquired company’s tangible book value. The acquiring company reflects the difference between the purchase price and tangible book value of the acquired company on its balance sheet as “Goodwill.” When the ‘Goodwill’ component of a company’s Balance Sheet increases over time, it signals that it is in acquisition mode. The Goodwill/Total Assets ratio was ~43% in FY2022 versus ~35% in FY2013.
Schneider Electric’s cash position has also remained robust, with cash and cash equivalents totaling €3.9 billion in 2022. This demonstrates the company’s strong cash flow generation and financial flexibility to pursue growth opportunities.
Cash Flow
Operating cash flow shows how much cash a company receives from operating after expenses. It is good to compare the operating cash flow with the net Income. I want the operating cash flow to be healthy and larger than the net income.
Free cash flow is the real cash profit and is one of the most important metrics for me. I like to see a company with free cash flow equal to at least 65% of net income over the last ten years. This ensures they have plenty of cash to pay us shareholders’ dividends. In 2022 Free cash flow was over 100% of net income, and a similar trend can be seen for the previous ten years.
Cash flow has been strong and stable over the last ten years, growing nearly 3.4% a year on average. Dividends are well covered by earnings per share and free cash flow, leaving plenty of room to grow them over the next few years.
Dividend History
Schneider Electric has a strong history of paying dividends to its shareholders. The company’s dividend policy is to distribute at least 50% of its net income to shareholders, with a target payout ratio of 55% to 60% over the long term.
Schneider Electric has consistently paid dividends to its shareholders every year since 1997, except in 2003, when it suspended its dividend due to the economic downturn. The company has also steadily increased its dividend payout over the years, reflecting its strong financial performance and commitment to creating value for its shareholders.
In 2022, Schneider Electric announced a dividend of €3.15 per share, an increase of ~5.8% compared to the previous year. This dividend represented a payout ratio of ~55% of the company’s net income.
Valuation
The P/E ratio is a widely-used valuation metric that measures a company’s stock price relative to its earnings per share (EPS). A high P/E ratio indicates that investors are willing to pay more for each dollar of earnings, which could be a sign of growth potential or a high valuation. As of February 22, 2023, Schneider Electric has a forward P/E ratio of around 18.7.
The P/S ratio is a valuation metric that measures a company’s stock price relative to its revenue per share. A high P/S ratio indicates that investors are willing to pay more for each dollar of revenue, which could be a sign of growth potential or a high valuation. As of February 22, 2023, Schneider Electric has a P/S ratio of around 2.5, slightly above the industry average of around 2.2, indicating that investors are willing to pay a premium for Schneider Electric’s revenue.
The P/B ratio is a valuation metric that measures a company’s stock price relative to its book value per share. A high P/B ratio indicates that investors are willing to pay more for each dollar of assets on the company’s balance sheet, which could indicate growth potential or a high valuation. As of February 22, 2023, Schneider Electric has a P/B ratio of around 3.3, above the industry average of around 3.1.
The EV/EBITDA ratio is a valuation metric that measures a company’s enterprise value (market capitalization plus debt minus cash) relative to its earnings before interest, taxes, depreciation, and amortization (EBITDA). A high EV/EBITDA ratio indicates that investors are willing to pay more for each dollar of EBITDA, which could be a sign of growth potential or a high valuation. As of December 31, 2022, Schneider Electric had an EV/EBITDA ratio of around 14.3, slightly above the industry average of around 13.5.
Stock on a page
Disclaimer
I have a long position in Schneider Electric but have no plans to buy within 72 hours of writing this article
Dividend Talk is not a licensed or registered investment adviser or broker/dealer. We are not providing you with individual investment advice on this site. Please consult with a licensed investment professional before you invest your money. This site is for entertainment, informational, and educational use only.
Any opinion expressed on the site here and elsewhere is not a form of investment advice provided to you. We use information, data, and sources in the articles we believe to be correct at the time of writing them, but there is no guarantee of their accuracy, completeness, timeliness, or correctness. We are not liable for any losses suffered by any party because of information published on this site or elsewhere on the internet. Past performance is not a guarantee of future performance. By reading this site or subscribing to it, you agree that you are solely responsible for making investment decisions with your funds.
