Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) for
The Rating Outlook is Stable.
The Stable Outlook reflects Fitch's expectation that NVT will prioritize deleveraging following the acquisition of the parent company of
Key Rating Drivers
Adding to Enclosure Business: NVT plans to acquire
Clear Deleveraging Path: Fitch expects NVT to use its FCF to pay down a portion of its debt over the next 12 months with leverage falling within the company's net leverage target of 2.0x-2.5x by the end of 2025. Over the past five years, NVT's EBITDA leverage has generally been under 2.5x, varying from 1.9x to 2.4x with the 2.4x recorded during 2020 due to the impact of pandemic. NVT has a track record balancing growth through M&A and its financial policies. NVT's EBITDA leverage fell to 2.3x following its
Record of Cash Flow Generation: NVT has generated strong FCF over the last several years, with post-dividend FCF margins ranging from 8% to 10% over the last four years, including a 10% margin in 2023. Fitch expects this trend to continue, with FCF of around 9% or greater of annual revenue through the medium term. High FCF is supported by effective working capital management and relatively low capital intensity, which should allow the company to maintain adequate financial flexibility through economic cycles.
Positive Tailwinds: Fitch expects continued medium-term growth across NVT's business segments driven by structural trends such as sustainability, electrification of everything, AI adoption and digitalization. Fitch expects these trends to be complemented by acquisitions. Fitch views the company's relatively high exposure to industrial, at 39% of 2023 sales, and limited exposure to residential as a positive in the near term.
Strong Market Positions: NVT has strong market positions in each of its segments; enclosures, thermal management and electrical and fastening solutions. Its products have limited digital content, though it invests around 2% of annual revenue in R&D, which supports long-term growth and margins. The company custom designs many of its products to specifications that its customers require, building the strength of its customer relationships.
Derivation Summary
NVTis a diversified manufacturer of enclosures for electrical products, thermal management products and fasteners, serving a variety of end markets. The company can be compared with other diversified manufacturers of a similar size and end-market exposure.
Key Assumptions
Revenues reach
NVT grows organically by low-to-mid single digits per annum over the forecast period;
EBITDA margins of approximately 24% through the forecast period;
Capital intensity of about 2%-3%;
Dividends increase over the forecast period;
Share repurchases of about
Effective interest rate of 5%-6%.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
A commitment to a more conservative financial policy that leads to mid-cycle EBITDA leverage sustained below 2.0x;
An increase in size, scale and product diversification that leads to increased market position;
FCF margin sustained above 10%.
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A less conservative financial policy leading to EBITDA leverage sustained above 2.5x;
A material decrease in backlog;
The company shifts capital allocation towards debt-funded shareholder remuneration;
FCF margin sustained below 7%.
Liquidity and Debt Structure
Sufficient Liquidity: NVT had total liquidity of about
Outstanding debt of
Issuer Profile
nVent (NVT) is a manufacturer of electrical products including enclosures for electrical products, thermal management products, and electrical fastening solutions for industrial, commercial and residential, energy, and infrastructure markets. The company sells its products through distributors and direct to customers.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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