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.
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.
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