Legrand Demonstrates Strong Pricing Pass-Through That Supports Margins Against Inflation

Legrand's first-half revenue grew by 11%, boosted by price increases of around 9% and just under 2% volume growth. All regions posted strong growth. We raise our fair value estimate to EUR 83 per share from EUR 75, adjusting for better-than-expected prices than we had anticipated. Management upgraded its full-year organic revenue guidance to 6%-9%; however, still implying lower growth in the second half. We will not be surprised by a lower second half given the incredible pace of pricing that drove the first half. We see a positive long-term demand picture for the business. We think further government and self-directed green initiatives will result in more building developers and owners selecting energy-saving products, even at a premium. Datacenters (contributing around 15% of group revenue including the most recent acquisitions) should also support demand for energy-saving products. Broadly, we expect a faster replacement cycle of the company's core low- and medium-voltage components into connected or smart technology versions that will be used in combination with building energy management software to lower building energy consumption. We think that even in a downturn this would not be discretionary spending given energy inflation and sustainability initiatives. We note that demand for green products remained strong in the quarter. Our narrow moat rating remains intact.