Data Centre Equipment "Implications from Siemens-Infineon announcement o..."

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Data Centre Equipment "Implications from Siemens-Infineon announcement o..."

Valuation Method and Risk Statement

The engineering sector is cyclical by nature. Our estimates and the share prices are therefore

likely to be sensitive to changes in expectations for global or regional growth and industrial

activity. Exchange rate fluctuations contribute additional risk to the sector. We value the

stocks in our engineering coverage universe based on the average of cash flow (DCF, residual

income and DDM) and static (multiple-based) valuation methodologies.

ABB Ltd:

Our price target is based on a DCF, discounting 6% mid-cycle org. growth and 21% margin.

ABB is involved in cyclical markets. Key risks to our rating relate to earnings and orders, if they

differ significantly from our current forecasts. ABB's business is also partly subject to the usual

risks associated with contracting, such as mispricing and poor execution.

Legrand:

We assume a 5% mid-cycle growth in our base case scenario based on analysis of Legrand's

business mix and track record between Faster Expanding Segments and traditional offerings.

We discount a 22% mid-cycle margin (in line with management's target), 100%

FCF conversion ratio and a 2% terminal growth rate. The downside risks to our TP and

Neutrall rating are: 1) cyclical risks in Residential that amount to c40% of group sales, 2)

limited margin upside and 3) risk of competition intensification given presence of technology

players in home automation/smart controls and the push by electrification peers into

specification software. The upside risks to our TP and Neutral rating are the opposite of the

above.

Schneider Electric:

Our price target is based on Discounted Cash Flow (DCF) valuation, supported by Sum-Of-

The-Parts valuation.