Schneider Electric 3Q10

Schneider Electric – 12% 3Q like for like growth and upgrade of margin guidance should trigger further upgrades - Q3 sales at €5,446mn were 6% ahead of consensus (ZoneFinance) and 4% ahead of JPM. The company upgraded guidance now expecting H2 like for like growth in high single digit growth (from around 6.5%) and an EBITA margin of 15.5-16% from 15.5%. In our model, for the comparable scope (excl. Areva) we have 6% like for like and a 15.6% margin. The higher guidance and higher Q3 revenues imply about a 5% upside to our EPS forecast for 2010. Schneider also announced a 50% acquisition of Electroshield, a leading Russian MV player for €265mn or 1.3x sales for a business with margins about in-line with group average, an attractive price at first sight. The ABI, an important measure for the health of the US non-residential market broke through the important level of 50 last night (50.4), for the first time since Jan 2008, indicating that the US non res market. Schneider reported Q3 sales of €5,446mn compared to our estimate of €5,240mn and consensus of €5,155mn, a beat of 4% and 6% respectively. Like for like sales growth at 12% was above our estimate of 8.3% and above consensus of 9.7%, which had risen into the results. Relative to our expectations, North America was in-line at 6%, Europe strong at 11% vs 7%, Asia was ahead at 20% vs 14% with the Rest of the World at 11% vs 7% expected. Schneider now expects an EBITA margin of 15.5-16% from 15.5% before. The guidance still excludes the Areva Distribution acquisition which we expect to have a dilute effect of about 60bp. In our model, we have a 15.6% margin excl. Areva. On sales growth, Schneider now guides to high single digit growth in H2 vs. 6.5% before. Assuming this means 9% and taking the 12% into account from Q3, this implies 6% in Q4 vs 2.7% implied in our model. Willi https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-489366-0.pdf