There’s a good reason a lot of industrial companies are prioritizing software and services – over the long term, it’s hard to maintain strong value generation from a hardware-based model. That’s something that Landis+Gyr (OTCPK:LDGYY) (LANDI.S) (“L+G”) has learned the hard way, as this leading manufacturer of smart electricity meters has had a generally lackluster track record as a public company apart from a brief, great run in 2019.
The core hardware that L+G offers just isn’t all that lucrative, and with an increasingly mature end-market, volume growth isn’t going to help. At the same time, I believe the company has underinvested in software tools and systems for utility customers, missing out on grid management and automation opportunities that would have been a natural fit with the hardware side of the business.
Low single-digit growth assumptions can support a decent-looking return from here, but I’m concerned that L+G may not be able to hit even those targets without a more significant rethink of its business. L+G has the resources to rebuild through internal investment and M&A, but it will likely take time to establish new drivers for the business.
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