Reece’s fiscal 2025 EBIT of AUD 548 million was 20% lower than the prior year. Revenue was flat at AUD 9 billion, including contributions from 4% more branches in its Australia, New Zealand, and US locations. Shares fell about 16% on the day.

The result was worse than our expectations. About three-fourths of Reece’s earnings are exposed to the residential sector in ANZ and the US. Here, high interest rates weigh on the demand for plumbing products, with fewer houses being built and homeowners skipping renovations.

The covid tailwind, where residential construction boomed and customers tolerated outsize inflationary price increases, is now behind us. In fiscal 2025, ANZ sales volumes and pricing were flat, while the US experienced volume declines and some price deflation.

We cut Fair Value estimate

We cut our fair value estimate by 20% to AUD 10 per share for no-moat Reece. About half of the cut reflects lower near-term earnings from cyclical headwinds, the remainder from assuming lower midcycle margins and market share growth given greater competition in Australia.

Competition includes the second-largest plumbing company, Tradelink—under new ownership, and JB Hi-Fi has bought into the kitchen, laundry, and bathroom company E&S—with plans to expand. Also, Caroma, Dorf, and Methven manufacturer, GWA Group, is increasing direct-to-plumber sales.

Shares trade at about a 15% premium to our valuation. We think the market is still more optimistic on the US business, but competition is hot there, and Reece is a small player. In Australia, Reece has a strong market share and brand recognition but was likely overearning amid renewed competition.

Most of Reece’s capital expenditure supports new store growth, and we expect this to continue in the near term. However, management identified underperforming Australian head-office functions, and there may be scope to cut costs, but the big picture remains increasing competition.

Reece (REH)

  • Moat Rating: No Moat
  • Fair Value estimate: $10 per share
  • Star Rating: ★★★

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