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Reliance Worldwide (RWC) rebounds after yesterday’s downgrade

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Reliance Worldwide (ASX: RWC) sold off heavily yesterday, following the release of disappointing half-yearly results. The soft result in 1H20 was on the back of a weak first half across the UK (Brexit) and Australia (slowdown in housing construction). Analysts underestimated the impact of those changes, which explained the share price action over the session.

The company recorded an adjusted net profit of $63.7m for 1H20, against guidance of ~$75m. Unsurprisingly, Reliance shares plummeted in response to the downgrade. The company rose slightly today, despite a broader market fall off the back of heavy declines on Wall St overnight, indicating some investors believe the business is oversold.

Although the company faces a challenging market backdrop, their core business remains strong. American revenue grew by 7%, alongside UK Plumbing and Heating sales which were up 3%. Analysts broadly view the EBITDA margin of 22.2% to be healthy. Looking forward to 2H20, Reliance Worldwide may upgrade the Enterprise resource planning system, which will streamline their operations and improve the company’s workflows. Nevertheless, the PE contraction came off a high base, which explained the sharp selloff.

RWC RELIANCE

Reliance Worldwide is an Australian plumbing supply and water solution business. The business identifies four main areas it develops solutions around. The first relates to their innovative business mindset: the company focusses on gaining a competitive advantage from delivering up-to-date technologies that will help save time for plumbers. They also develop products to control temperature and pressures of water values for residents, commercial and industrial properties. Additionally, Reliance can develop solutions for water monitoring and detecting leakage.

Their flagship product is the SharkBite, a brass push-to-connect plumbing system for hot and cold-water applications. Currently, this product is their best seller and the largest component of revenue.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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