Kalkine has a fully transformed New Avatar.
Company Overview: Reliance Worldwide Corporation Limited (ASX: RWC) is engaged in designing, manufacturing and supply of high quality, reliable and premium branded water flow, control and monitoring products and solutions for the plumbing and heating industry. The company carries out its operations through three segments Americas (Including the USA and Canada), Asia Pacific (Australia, New Zealand, Korea and China) and EMEA (the United Kingdom, Germany, Spain, Italy, Poland, France and the Czech Republic).
RWC Details
Rising Products Demand and Cost Saving Initiatives to Aid Future Growth: RWC is one of the leading manufacturers in the world of brass Push-to-Connect (PTC) plumbing fittings. Backed by the acquisition of EZ-FLO International in November 2021, the company is now placed as one of the leading service providers of major appliance installations, including plumbed appliances, gas, hot water, and dryer venting. RWC is focused on cost reduction initiatives, which delivered savings of $3.1 million in the 1HFY22, and the company expects cost savings run rate of $10 million in FY22. The company’s growth strategy revolves around providing smart product solutions, increasing value for the distributors and operational excellence. RWC is focused on M&A opportunities for pursuing organic growth initiatives. In addition, it is also focused on the capital management approach, whereby it aims to optimise the cost of capital and ensure ongoing access to funding to match future requirements. On the back of rising home remodelling activity and higher levels of new home construction, the demand for its products is rising, which signals a decent outlook in the long run.
1HFY22 Operational and Financial Summary: During the half-year ended 31 December 2021, the company experienced robust market conditions and demand for its products.
Revenue & Adjusted EBITDA (Source: Analysis by Kalkine Group)
Segments Performance: During 1HFY22, the company witnessed decent growth across all its business segments as depicted in the below picture:
Segment Performance (Source: Analysis by Kalkine Group)
Top 10 Shareholders: The top 10 shareholders together form around 50.54% of the total shareholding, while the top 4 constitute the maximum holding. Bennelong Australian Equity Partners Pty. Ltd. and AustralianSuper. are holding a maximum stake in the company at 10.91% and 10.90%, respectively, as also highlighted in the chart below:
Top 10 Shareholders (Source: Analysis by Kalkine Group)
Key Metrics: During FY21, the company recorded an EBITDA margin of 26% as compared to the industry median of 23.4%. It posted a current ratio of 2.03x in FY21 as compared to the industry median of 1.56x. Cash cycle for the year stood at 148.5 days in FY21 against 161.2 days in FY20. On the leverage side, the company recorded a debt-to-equity ratio of 0.13x in FY21 as compared to the industry median of 0.36x.
Liquidity & Leverage Profile (Source: Analysis by Kalkine Group)
Key Risks:
Outlook: Looking forward, the company believes that the market fundamentals continue to indicate steady demand supported by the trend of increased expenditure on home remodelling activity. In addition, 2HFY22 will be supported by increased levels of new home construction and house price capital growth. The company believes that it is in a decent position to navigate supply chain challenges and respond effectively to customer needs, which will be supported by its local manufacturing operations and strong track record of class-leading customer execution. The company continues to have a decent balance sheet and conservative financial position and remains well within its target leverage ratio of 1.5 times to 2.5-times Net Debt to EBITDA.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of RWC is trading below its 52-week low-high average of $4.060 - $6.610, respectively. The stock has been corrected by ~7.25% and ~19.76% in the past one and three months, respectively. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, P/E multiple, considering the supply chain issues and other material business risks, etc. For the purpose of valuation, a few peers like GWA Group Ltd (ASX: GWA), Boral Ltd (ASX: BLD), and Adbri Ltd (ASX: ABC) have been considered. Considering the expected upside in valuation, growing revenue, rising demand for products, expected cost savings, optimistic long-term outlook, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $4.920, as on 21 February 2022, ~10:30 AM (GMT+10), Sydney, Eastern Australia.
RWC Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.