Stock story: Schneider Electric

Sustainable growth from decarbonisation. (Reading time: 2 mins)

Stock story: Schneider Electric

April 2022

Since the 2015 UN Climate Change Conference in Paris more than 190 countries have committed to net-zero climate goals. A country committing to net zero effectively signs up companies, communities and consumers to net zero. This transition means that households, residential buildings, commercial buildings, data centres and hospitals need to reduce and, ideally, eliminate carbon emissions. While consumers, the primary purchasers of goods and services, are critical in this transition, it is companies that need to make adjustments to their operations, including to their product and service offerings, to enable consumers to make more sustainable choices. France-based Schneider Electric is focused on enabling companies and consumers to improve the efficiency of electricity.

Schneider Electric is a leading manufacturer of electrical products (for example, circuit breakers, wires, switchboards and switches) and a dominant global player in industrial automation. The combination of electrification and technology places Schneider Electric at the forefront of the decarbonisation of buildings, the grid and business operations. Schneider Electric helps to reduce energy use, replace energy sources and electrify operations.

Example 1: Decarbonising buildings. Schneider Electric assists customers operating carbon-neutral buildings, including retrofitting old buildings. Schneider Electric has a full-service offering to achieve this goal, ranging from consultation to design and product. Sensors and renewable energy are key to the transformation. Sensors, for example, are used to assess the level of light and temperature, which then auto-adjust for the optimal outcome, which reduces energy use and cost.

Example 2: Smart electric grids. The increased use of renewables at home and commercially will lead to some decentralisation of the energy grid. With dispatchable generation no longer the only source of power, we now have greater variability in generation, which requires new solutions to ensure stability and consistent power to customers. Schneider Electric, through software solutions, hardware and consultation, is working with utilities to adapt to this new energy market.

Schneider Electric’s exposure to decarbonisation is a sustainable growth tailwind, just one of the reasons why we invest in the company. Schneider Electric, which amassed revenue of 28.9 billion euros in fiscal 2021, has a sticky installed equipment base and customers, high barriers to entry with more than 650,000 worldwide distribution partners and 15,000 original equipment manufacturers, a strong brand that represents quality and allows premium pricing, and technology leadership and domain expertise. These positives are partially mitigated by the low to moderate switching costs, competition in the low-voltage industry, and moderate returns. Schneider Electric is also exposed to company capital expenditure cycles, which leads to cyclicality in earnings.

Overall, Schneider Electric is a quality business that has leading distribution and quality electrical equipment and automation. Schneider Electric stands to benefit from the long-term decarbonisation of society.

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