RELIANCE WORLDWIDE CORPORATION LIMITED
RWC Details
Quick Lookback: Reliance Worldwide Corporation Limited (ASX: RWC) is engaged in the manufacturing and supply of branded water flow monitoring and control products and solutions for the heating and plumbing industry.
- RWC reported an adjusted EBITDA growth of 41% from 9 Mo/FY20 till 9 Mo/FY22.
- Apart from COVID-19, RWC reported a growth in its sales where American sales, excluding EZ-FLO Acquisition numbers, was up by 34% on a two-year basis for nine months ended 31st March 2022.
- The market fundamentals look positive for long-term growth as US private fixed residential investment (PFRI) as a proportion of GDP has recently oscillated around a 20-year long-term moving average of 4.2-5.2%.
Recent Update:
- Mitsubishi UFJ Financial Group Inc has increased its voting share in RWC from 6.28% to 7.32% as on 20 May 2022.
Summary of 9-month FY22 Performance, (Source: Analysis by Kalkine Group)
Key Risks: The company face risk from supply chain disruption and rise in freight charges. RWC is also exposed to changes in economic conditions and regulations that can impact its end-market.
FY22 Outlook RWC expects to achieve a margin between mid-20% in the coming 4th quarter, however, due to inflation company’s Q4 margin will not match the FY21 margin. In the coming future, the company expects to introduce new products which will help them to continue to deliver above-market growth.
Long-Term Vision: The company is focused on creating value from its product leadership by improving contractor productivity, providing broad access to the company’s product to end customers, maintaining premium quality, and margin expansion. RWC operates in three regions where America continues to provide the highest medium-term growth opportunity.
Valuation Methodology: Price/Earnings Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
Stock Recommendation: The stock of RWC is trading below its average 52-week low-high level of $3.760-$6.610, offering a decent opportunity for accumulation. The stock has been down by ~1.01% in the past one month. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a discount to its peers, considering disruption in supply chain, macroeconomic conditions, and decline in margins. For the purpose of this valuation, a few peers like GWA Group Ltd (ASX: GWA), Boral Ltd (ASX: BLD), Abdri Ltd (ASX: ABC), and others have been considered. Considering the expected upside in valuation, growth in revenue, favorable market fundamentals, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $3.920, up by ~ 0.255% as on 31st May 2022.
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.
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 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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