2023-05-11 19:31:57 ET
Summary
- NVT recently posted solid Q1 FY23 results. They saw a growth in their revenues and net income.
- They will acquire ECM Industries, which will strengthen its electrical & fastening segment.
- Their technical chart and valuation look good.
- I assign a buy rating on NVT.
nVent Electric plc ( NVT ) manufactures electrical connection and protection products internationally. It operates in three segments: Electrical & fastening solutions, enclosures, and thermal management. In the electrical & fastening solutions segment, they provide fastening solutions to protect electrical systems and civil structures. In addition, they offer solutions to protect critical electronics and power equipment in the enclosure segment. In the thermal management segment, they provide electric thermal solutions that protect buildings and industrial processes; it also offers thermal management systems, which include floor heating, sensing, and de-icing solutions. NVT recently announced solid Q1 FY23 results. Their revenues and net income grew in tough market conditions. I will analyze its financial results and talk about the ECM acquisition in the report. I believe they are undervalued and have a promising future. Hence, I assign a buy rating on NVT.
Financial Analysis
NVT recently posted its Q1 FY23 results. The net sales for Q1 FY23 were $740.6 million, a rise of 6.6% compared to Q1 FY22. I think the increase in revenues from the enclosures and electrical & fastening solutions segment was the main reason behind the revenue increase. The revenues from the enclosures and electrical & fastening solutions segments grew by 9% and 9.5% in Q1 FY23 compared to Q1 FY22. Talking about the enclosures segment, I believe strong volumes and strength in the data solutions business were the main reason behind the revenue growth. In the electrical & fastening solutions segment, I think management's high pricing policy and strength in the power utilities were the main reason behind the revenue growth.
The net income for Q1 FY23 was $93.8 million, a rise of 38.3% compared to Q1 FY22. I believe the increase in income from the enclosures and electrical & fastening solutions segments was the main reason behind the rise. The income from the enclosures and electrical & fastening solutions segments were up by 64% and 30% in Q1 FY23 compared to Q1 FY22. I believe the financial performance of NVT in Q1 FY23 was excellent strong execution and better policies by the management led to a significant increase in their revenues and net income in tough market conditions, which is quite impressive.
Technical Analysis
NVT is trading at the level of $41.8. In February 2023, the share broke out of its all-time high of $40 and moved up by 15.5% to form a new all-time high of $46.5. The stock has now formed a solid support zone at $40, and I believe one can buy the company at current levels because the stock has retested its breakout level of $40. When a stock gives a breakout and comes back to retest the levels, there is a high chance that the stock might gain fresh momentum and give an upward rally. Looking at the price chart, I think it can reach the $50 level in the coming times.
Should One Invest In NVT?
The thing that I like about NVT is its diversified portfolio. It has a wide range of products, and the management is constantly spending heavily on R&D; in the Q1 FY23, it introduced 17 new products strengthening its portfolio. In addition, they recently announced that they would acquire ECM industries, which I think can be great for the company because acquiring ECM will expand its presence in North America. ECM Industries has a strong presence in North America and clocked $415 million in revenues in FY22. I think this acquisition will complement its grounding solutions and electrical power connection portfolio, strengthening its electrical & fastening segment. Another thing that impressed me was despite tough and unfavorable market conditions in North America and Europe, they were able to grow the revenues in these regions, which shows their ability to work in tough conditions.
Now talking about its valuation. NVT has a P/E ((FWD)) ratio of 15.25x compared to the sector ratio of 16.23x, and it has an EV / EBIT ((FWD)) ratio of 12.89x compared to the sector ratio of 14.51x. So after looking at both ratios, I believe NVT is undervalued and still has a lot of room for growth. So looking at its growth rate, I think the valuations are justified.
The shareholding pattern of NVT also looks perfect, with institutions holding a 93.6% stake in the company, which is a positive sign. In a company where institutions hold a majority of the stake, we see fewer share price fluctuations, and generally, it is considered a safe investment option.
Risk
In FY22, sales outside the United States comprised about 37% of its net sales. Their financial statements show the conversion of items with foreign currency denominated in USD. Therefore, their reported revenue and income in U.S. dollars might be effectively reduced to the extent of the change in currency valuations if the U.S. dollar strengthens relative to the main non-U.S. currencies from which they derive revenue compared to a prior period and vice versa. For the year ended December 31, 2022, foreign currency translations had a 4% negative impact on its net sales. In addition, foreign exchange rate fluctuations, most notably the dollar increase against the euro, might significantly harm the reported revenue and net income.
Bottom Line
They are on a solid growth trajectory and are looking fundamentally and technically strong. I also like the valuation, and I believe their acquisition strategy and diversified portfolio of products will make them a winner in the long term. Hence, I assign a buy rating on NVT.
For further details see:
nVent Electric: Solid Business With Good Growth Potential