Barclays downgrades Rexel to “equal weight” as pricing power fades, growth slows

Investing.com -- Barclays cut its rating on French electrical distributor Rexel SA (OTC:RXEEY) to “equal weight” from “overweight,” saying the investment thesis has run its course after strong recent gains and waning pricing momentum. 

The brokerage said the company’s position as a key electrification and data center supplier remains intact but that the catalysts which fueled its earlier outperformance have largely been realized. 

The downgrade follows a 10% three-month relative outperformance versus the SXNP index, which Barclays said leaves limited near-term upside. 

“Lack of incremental pricing in 3Q suggests optionality around RXL as a tariff beneficiary has been realised,” the brokerage said. 

The brokerage added that the “chapter on strong electrification pricing” appears to be closing, as customers are no longer willing to absorb higher prices for electrical equipment. 

Third-quarter pricing was “essentially flat,” slipping 10 basis points sequentially, while management indicated similar trends for the fourth quarter and no further tariff-related gains ahead.

Barclays analysts said that although Rexel has maintained resilience during periods of end-market weakness, cost inflation and intensifying competition have compressed earnings potential. 

The brokerage added that without renewed pricing traction or portfolio transformation, the company is unlikely to see a valuation rerating.

Rexel’s management recently completed disposals in low-profitability markets such as New Zealand and Finland, while prior acquisitions like Mayer have strengthened its position in data centers. 

However, Barclays noted that the merger and acquisition pipeline is not expected to yield meaningful results in the near term, and there are no active disposal processes underway. 

Countries such as Germany, the U.K., Italy, and Australia remain at low-single-digit profitability, and while management is expected to pursue further turnarounds, the report said margin improvement will likely take longer to materialize than through asset sales.

On valuation, Barclays said Rexel trades at a roughly 50% discount to the SXNP on a two-year forward consensus price-to-earnings basis, broadly in line with its average since 2021. 

The analysts said the company is “fairly valued in a historical context,” with few catalysts to drive further rerating absent a clear rebound in European construction or meaningful portfolio change.

Financially, Rexel’s 2025 adjusted earnings per share (EPS) are projected at €2.24, rising to €2.67 in 2026 and €2.92 in 2027. 

Revenue is forecast to increase from €19.4 billion in 2025 to €21.6 billion in 2027, while the EBITA margin is expected to climb modestly from 6% to 6.6%.

Free cash flow is estimated to reach €692 million by 2027, and the dividend yield stands at 4.3% for 2025.

Barclays maintained a “neutral” industry stance on European Capital Goods and said it now finds better risk-reward opportunities in peers such as Legrand.