Reliance Worldwide Corporation Limited

RWC Details

Robust Increase in Net Sales:Reliance Worldwide Corporation Limited (ASX: RWC) is involved into designing, manufacturing, and supplying of water flow and control products and solutions for the plumbing industry. The market capitalisation of the company stood at ~A$2.65 Bn as on 6^th August 2019. Recently, the company with the help of a release announced that Macquarie Group Limited and its controlled bodies corporate ceased to be a substantial holder in the company from 1 August 2019. The company further stated that it would be releasing its financial results for the year ending 30^th June 2019 on 27^th August 2019. Moving towards the financial performance of the company, it reported net sales of $544.2 Mn in 1H FY19, reflecting a rise of 50% in comparison to $362.6 Mn in 1H FY18. In the same time period, the company witnessed a solid revenue performance throughout all of its three segments. The revenues of Americas segment witnessed a rise of 21%, Asia Pacific encountered an increase of 7% and EMEA segment revenue increased by 425%, which includes John Guest sales post acquisition. Adding to that, it was also stated that the company continued double-digit growth in underlying sales in the Americas on a constant currency basis prior to the inclusion of John Guest.


Change in Net Sales (Source: Company Reports)

The cash flow from operations stood at $69.5 Mn in 1H FY19, reflecting a rise of 25% in comparison to 1H FY18.The company added that working capital growth and operating cash flow conversion in the half year primarily reflects increases to support growth, adjustment to improve service levels to John Guest customers as well as expiry of one-off payment terms incentive.

What to Expect: The company stated that each of its operating segments is being affected by the market?specific factors, which are adversely impacting the performance. The company is expecting EBITDA for FY19 to be between $260 Mn - $270 Mn in comparison to the previous guidance range of $280 Mn - $290 Mn.With respect to Americas segment, it stated that this business is continuing to achieve good underlying growth. The company has estimated that the lack of a modest freeze event has decreased net sales in the range of $12 Mn - $15 Mn.

In relation to John Guest Synergies, the company stated that the overall John Guest integration activities are continuing to progress on or ahead of schedule.The company further added that for FY19, the realised synergies remain on track to meet or surpass the target amounting to $10 Mn with anticipated run rate synergies of $20 Mn p.a by the end of FY19. Additionally, the company remained a global leader in brass and plastic push to connect fittings technology.

Stock Recommendation: In 1H FY19, the company reported a gross margin and EBITDA of 42.8% and 22.2%, reflecting a rise of 0.1% and 0.3% on YoY basis, respectively. It delivered a net margin of 12.1% in 1H FY19 as compared to 11.4% in 1H FY18. This implies that RWC has improved its capability to convert its top-line into the bottom-line. The company reported a current ratio of 3.57x in 1H FY19, reflecting YoY growth of 17.2%, which reflects that the company has improved its position to meet its short-term obligations. Coming to the stock’s past performance, it provided returns of -9.95% and -28.57% in the time span of one month and three months, respectively. Currently, the stock is trading at close to its 52-week low levels of $3.105, proffering a decent opportunity for accumulation. Hence, considering the above-stated facts coupled with decent outlook and current trading levels, we give a “Buy” recommendation on the stock at the current market price of A$3.240 per share (down 3.284% on 6^th August 2019).


RWC Daily Technical Chart (Source: Thomson Reuters)

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