Reliance Worldwide Corporation Ltd (ASX: RWC) designs, manufactures and supplies water flow and control products for the plumbing industry worldwide. Its market capitalisation is $2.7 billion.
What is the FY19 result?
Today (Tuesday 27 August 2019), Reliance released its FY19 results. The main points are as follows:
- Net sales of $1.1 billion, up 43 per cent FY18. This is due to the acquisition of John Guest Group. Underlying sales increased by 5.4 per cent.
- Adjusted NPAT of $154 million, up 80 per cent on FY18.
- Adjusted earnings per share of 19.4 cent, up 22.7 per cent on FY18.
- A final dividend of 5 cents per share (fully franked). This takes the total dividend for the year to 9 cents, compared with 6.5 cents in FY18.
The key features of the FY19 result include the following:
- Reliance acquired the John Guest Group (the largest manufacturer in the world of plastic push-to-connect plumbing products) in June 2018. Reliance says that a key achievement in FY19 has been the successful integration of the John Guest Group with Reliance’s existing operations. Further, realised synergies in FY19 of $14.2 million have been achieved, which is ahead of the $10 million target. Reliance expects synergies to exceed $30 million per annum on a run rate basis by the end of FY20.
- Reliance noted another year of strong net sales growth in the Americas segment, particularly in the first half, with underlying sales for the whole year up over 8 per cent.
- Reliance also noted that the record profit result in FY19 was achieved notwithstanding it faced a number of headwinds during the year including a slowdown in new residential construction in Australia, the absence of a freeze in the southern US, higher copper costs in the first half which impacted brass costs, increased tariffs on goods imported from China into the US and Brexit uncertainty in the UK.
What is the outlook?
Reliance expects NPAT for FY20 to be in the range of $150 million to $165 million, around the same level or slightly higher than in FY19. Reliance notes that performance within this range could be impacted by a number of external factors including the extent of Brexit disruption in the UK, economic and construction market conditions in other key markets, raw material costs and foreign currency impacts.
In terms of the regional outlook for FY20, Reliance noted the following:
- Conditions in the Americas are positive, with modest growth in residential new construction and continued growth in remodel activity.
- In the Asia Pacific region, Australian new housing construction is expected to continue at lower levels than in recent years with the risk of further decline.
- In the EMEA region (Europe, the Middle East, and Africa), Brexit uncertainty clouds the short-term outlook for the UK; softer trading conditions at the end of FY19 have continued in the first two months of FY20.
What is the market’s reaction?
Today (Monday 27 August) Reliance is trading at around $3.55, up 7.7 per cent reflecting a better than expected result for FY19. Reliance trades at a P/E ratio in the high teens and an annual dividend yield (based on FY19 dividends) of around 2.5 per cent (fully franked).
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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