Rexel (OTCPK:RXEEY) (RXL.PA) is far from the only company to have sold off recently on renewed fears of what a resurgence in COVID-19 cases in Europe (and ongoing growth in the U.S.) will mean for the expected economic recovery. Still, with better than expected results and significant potential from both internal transformation (digital efforts namely) and external drivers like onshoring, automation, and green retrofits, I believe the recent pullback has created a more attractive opportunity in the shares.
Distribution is a difficult business, and investors should never expect Rexel to produce the sort of margins that its suppliers (ABB (ABB), Eaton (ETN), et al) do, but I believe the efforts underway here will lead to consistent FCF margins in the 3%’s and EBITDA margins moving towards the high single digits over the next five years. That, in turn, supports a low-to-mid-teens total annualized return from current levels, making this a pretty attractive option in my view.
Rexel’s ADRs are not particularly liquid, and that may be an issue for some investors, though buying the local shares is an option with many brokers these days.
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