Rexel Pounded On Fears Of Protracted Construction Declines

Where I had previously expected Rexel (OTCPK:RXEEY) (RXL.PA) to face a slowing non-residential construction market in 2020 and a bottoming industrial market, those assumption are out the window with Covid-19 leading to drastic slowdowns in activity around the world. With fears of much worse near-term revenue and margin prospects, a longer-term downturn in commercial activity, and a liquidity squeeze, Rexel shares have lost more than 40% of their value from my last update in December.

Current conditions are indeed bleak, and I am concerned about the prospect of an extended decline in non-residential new-build activity, but I see industrial automation spending returning late in 2020 and into 2021, and I believe renovation/retrofit activity can support the non-resi business to some extent. On top of that Rexel still has its own self-improvement initiatives, like the increasing digitalization of its business. If low single-digit revenue growth and long-term FCF margins in the 3%’s are still attainable, these shares are more than 50% undervalued now.

Investors considering this name should note that the U.S. ADRs are not especially liquid.

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Rexel Pounded On Fears Of Protracted Construction Declines