Reliance Worldwide Corporation Limited

RWC Details

H1FY21 Financial Update: Reliance Worldwide Corporation Limited (ASX: RWC) is engaged in the design, manufacture and supply of premium branded water flow, control and monitoring products and solutions. The market capitalisation of the company as on 23 February 2021 stood at ~$ 3.63 billion. As per a recent update, the company has announced its H1FY21 results and reported an increase of 13% in net sales to $642.4 million, compared to the previous corresponding period. There was a growth of 22% sales from the Americas region. Cash flow from operating activities were up by ~17% to $155.6 million. There was a reduction in net debt by $76 million during the period, reflecting reduced leverage of 0.88x (Net Debt/EBITDA). An interim dividend of 6 cents per share was declared during H1FY21.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: RWC will look for margin expansion through continuous improvement initiatives, cash flow performance and execution. It will also renew its focus on M&A activities, with the stabilisation of the impact of COVID-19 on the economy.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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 company has reported an impressive rise in NPAT by 82% to $91.4 million in H1FY21, aided by repair & maintenance activity and increased traction in demand in home improvement markets. As per ASX, the stock of RWC is trading above its average 52-weeks’ levels of $1.630-$4.940. The stock of RWC gave a positive return of ~9.04% in the past three months and a positive return of ~26.51% in the past six months. On a technical analysis front, the stock of RWC has a support level of ~$4.358 and a resistance level of ~$4.922. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a premium to its peer average P/E (NTM Trading multiple), considering its decent financial performance, dividend declaration amidst COVID-19 pandemic and stable balance sheet. For the purpose, we have taken peers such as Boral Limited (ASX: BLD), CSR Limited (ASX: CSR), James Hardie Industries PLC (ASX: JHX), to name a few.  Considering the current trading levels, expected upside in valuation, impressive performance in H1FY21 and reduction in net debt, we recommend a ‘Hold’ rating on the stock at the current market price of $4.580, down by 0.435% as on 23 February 2021.

RWC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Costa Group Holdings Limited

CGC Details

Business Update: Costa Group Holdings Limited (ASX: CGC) is engaged in growing, packing and marketing of fresh produce. The market capitalisation of the company as on 23 February 2021, stood at ~$1.81 billion. The company has recently announced a dividend of $0.05 per ordinary share with a record date of 11 March 2021.

CY20 Financial Update: The company reported resilient current CY20 results, with total transacted sales of $1,598.6 million during the period. Revenues were at $1,164.9 million in CY20, compared to $1,047.8 million in CY19. There was a simultaneous increase in the NPAT to $59.4 million in CY20 from $28.5 million in CY19. Net debt improved to $143.9 million, which is a decrease of 19.5% on the previous corresponding period.

CY2020 Financial Performance (Source: Company Reports)

Outlook: The company expects demand and pricing across produces to remain strong in CY21. There will be a continued focus on better yield, geographical spread, quality and cost of production.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: CGC’s decent performance in CY20 has been supported by favourable market conditions, positive demand and pricing of fruits especially citrus, berry and avocado. As per ASX, the stock of CGC is trading above its average 52-weeks’ levels of $2.380-$4.550. The stock of CGC gave a positive return of ~11.39% in the past three months and a positive return of ~10.27% in the past one month. On a technical analysis front, the stock of CGC has a support level of ~$3.926 and a resistance level of ~$4.492. We have valued the stock using a P/CF multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as Elders Limited (ASX: ELD), Graincorp Limited (ASX: GNC), Select Harvests Limited (ASX: SHV), to name a few.  Considering the current trading levels, expected upside in valuation, decent performance in CY20, improvement in net debt and increase in transacted sales during CY20, we recommend a ‘Hold’ rating on the stock at the current market price of $4.40, down by 2.87% as on 23 February 2021.

CGC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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