(News Bulletin 247) – The German bank has raised its rating from “hold” to “buy” on the electrical infrastructure specialist. The cycle of rate cuts by central banks should benefit the company whose business depends on the health of the building.

Confidence seems to have returned to Legrand. The specialist in electrical infrastructure (electrical panels, switches, cable management for data centers) had already reassured investors when it published its first-half results at the end of July, thanks to growth that exceeded expectations.

In recent days, several analysts have revised their opinion on the case, which has boosted the stock market.

Again this Tuesday, Legrand gained 2.3% around 10:20 a.m., marking one of the biggest increases in the CAC 40. Over a month, Legrand rose by more than 8.5%, largely outperforming the largest index on the Paris market, which gained 2.6% over the same period.

The action was carried on Tuesday by Deutsche Bank, which raised its advice on the stock from “hold” to “buy”, while raising its price target to 115 euros from 100 euros previously.

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Deutsche Bank said Legrand is one of the capital goods stocks most sensitive to the looming rate cut cycle, due to its exposure to construction. Residential construction accounts for 40% of its revenues and non-residential around 45%, according to the German bank.

The reduction in key rates, which has been initiated by the European Central Bank while the American Federal Reserve will begin its cycle next week, should logically benefit the construction industry and, by extension, Legrand.

Deutsche Bank also notes that the premium at which Legrand trades on the stock market compared to its sector (in terms of expected profits) has fallen to 10% currently compared to a historical gap of 20%.

“We now expect the stock to gradually regain its lost status as the group’s main verticals (housing and offices) are expected to bottom out soon, reinforcing investor confidence in the group’s ability to deliver stronger growth going forward,” Deutsche Bank said.

“We appreciate the quality of Legrand’s positioning (a “niche giant”) and its ability to take advantage of the trend towards mass electrification, the smart home revolution, the growing demand for energy efficiency in buildings and the strong dynamics of data centers,” adds the German establishment.

Defensive values

Deutsche Bank also believes that growing concerns about the economy could highlight “defensive attributes (high and consistent margins, better cash generation, strong pricing power)” which would be “once again” valued by the market.

The German bank is the second research firm to raise its rating on the stock in the space of 24 hours. On Wednesday, JPMorgan moved from “neutral” to “overweight.” Like Deutsche Bank, JPMorgan judged that Legrand could benefit from interest rate cuts given its exposure to construction and electrification, reported the Agefi-Dow Jones agency.

The American institution notes that both analysts’ expectations and the company’s valuation are very low.