Reliance Worldwide Corporation Limited
RWC Details
Recent Update: 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. Recently, the company informed the market that Mitsubishi UFJ Financial Group, Inc, a substantial shareholder of the company, has increased its voting power from 5.25% to 6.28%.
1HFY22 Key Highlights:
- The company recorded revenue of US$521.8 million in 1HFY22, reflecting a rise of 12% over pcp, thanks to rise in price, new product revenues, and core volume growth in some regions. Adjusted EBITDA for the period rose by 5% to US$125.5 million, and adjusted EBITDA margin stood at 24.1% in 1HFY22.
- The company reported NPAT of US$63.7 million, down by 3% year over year, which brought EPS to 8.1 cents per share against 8.4 cents per share in 1HFY21. The company declared an interim dividend of US4.5 cents per share at a record and payment date of 11 March 2022 and 8 April 2022, respectively.
NPAT Highlights (Analysis by Kalkine Group)
Key Risks: The company’s business is exposed to supply chain issues relating to shipping and freight delays, materials shortages, and construction sector delays. The company is exposed to risks arising from the fluctuation in the foreign currency as it has operations in multiple geographies.
What to Expect?
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 has been corrected by ~27.30% in the past six months. The stock is trading below to its average of the 52-weeks’ low-high price band of $3.91-$6.610. The stock has been valued using the P/E-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers, considering the geographical diversification, rise in revenues, etc. For this purpose of valuation, a few peers like Boral Ltd (ASX: BLD), James Hardie Industries PLC (ASX: JHX), and Reece Ltd. (ASX: REH) have been considered. Considering the expected upside in valuation, growing revenue, rising demand for products, cost saving synergies, 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 $4.05, as on 14 March 2022, ~12:30 PM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
RWC Daily Technical Chart, Data Source: REFINITIV
Electro Optic Systems Holdings Limited
EOS Details
FY21 Key Highlight: Electro Optic Systems Holdings Limited (ASX: EOS) is engaged in the design, development, and production of advanced electro-optic technological devices and systems for the defence and space markets.
- The company reported revenues of $211.8 million, depicting a rise of 17.5% on prior comparable, owing to planned investment in SpaceLink Corporation (SpaceLink). Gross margin during the period remained strong across all major segments, with robust growth in Group operating profitability.
- EOS received ~$233.4 million cash receipts from customers, up from $107.6 million reported in FY20. Net cash from operating activities improved to $904.9K in FY21 as compared to outflows of $109.1 million in FY20, as COVID-19 impacts started to calm down. The company exited the period with ~$59.26 million cash and cash equivalents as of 31 December 2021.
- The company invested $37 million in SpaceLink during FY21, to accelerate engineering and business development. Capital expenditure stood at $19 million in FY21. Moreover, EOS won contract to demonstrate technology on International Space Station (ISS).
Top-Line Highlight; (Analysis by Kalkine Group)
Key Risks: The company is exposed to supply chain disruption caused by COVID-19 outbreak, delays in contract negotiation, and customer access. In addition, any change in technology, rising geopolitical tensions, particularly in Eastern Europe, may impact its business growth.
Outlook: The company is well positioned to support allies currently under intense national security pressure. In recent years, the company has invested in technology development, thus focusing on secure and resilient communications, directed energy, space asset protection and remotely operated systems.
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 EOS gave a negative return of ~50.40% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.605 - $5.69. The stock has been valued using the P/E based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers, considering its continued COVID-19 impact, macroeconomic uncertainties, forex headwinds, etc. For this purpose of valuation, few peers like Austal Limited (ASX: ASB), PTB Group Limited (ASX: PTB), and others have been considered. Considering the current trading levels, contract wins, optimistic long-term outlook, valuation upside, current trading levels, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $1.855, down by ~4.382% as of 14 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
EOS Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.
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.
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