GWA Group Limited

GWA Details

This report is an updated version of the report published on 15^th June 2022 at ~3:23 PM GMT

Quick Look back at 1HFY22 Performance: GWA Group Limited (ASX: GWA) is involved in the research, design, manufacturing, import, and marketing of building fixtures and fittings to residential, commercial, and distributional channels in Australia New Zealand, and selected international markets.

• The group revenue was up 2.1% to $201.3 million and normalized EBITDA up 8.0% to $45.5 million in H1FY22 against H1FY21. The reported Net Profit after tax rose by 1% to $18.6 million. during
• GWA experienced strong cash conversion from operations at ~96%. The leverage ratio improved to 1.3%, indicating strong credit metrics.

Group Revenue Regional Segment, (Source: Analysis by Kalkine Group)

Key Risks: The company faces the risk of lockdown or rising restrictions due to the COVID-19 pandemic in the international market. The distortion in building activity can impact growth and margins. The significant movement in domestic currency can impact imported products.

Outlook:  The management maintained a positive outlook for 2HFY22 and expected EBIT to remain higher than 1HFY22. The company expects the residential and commercial activity to remain positive. GWA remains on track to deliver annualized supply chain savings of $3 million from FY22 and out of which $2 million has already been achieved in 1HFY22.

Valuation Methodology: EV/EBITDA 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 GWA is currently trading near its 52-week low level of $1.855, providing a decent opportunity for accumulation. The stock has been corrected by ~10.90% in the past month. The stock has been valued using an EV/ EBITDA multiple-based illustrative relative valuation and arrived at a target of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the COVID-19 concerns, interest rate hikes disrupting market conditions, competition in the industry, etc. For valuation, peers such as Reliance Worldwide Corporation Ltd (ASX: RWC), Fletcher Building Ltd (ASX: FBU), Adbri Ltd (ASX: ABC), and others have been considered. Given the projects in the supply chain, expected growth in 2HFY22 EBIT levels, decent H1FY22 results, current trading levels, expected upside in valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on this stock at the current market price of $1.865, as of 15^th June 2022, 10:40 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

GWA 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 for 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 a 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 price.

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