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Reliance lifts sales, flags cost savings

Emma Rapaport with AAP  |  27 Aug 2018Text size  Decrease  Increase  |  
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Plumbing supplies giant Reliance Worldwide (ASX: RWC) has reported a flat full-year profit of $66 million, driven by the success of SharkBite Push-Top-Connect fittings, but is flagging greater-than-expected cost savings from this year's purchase of a UK plastic fittings manufacturer.

Reliance says net profit for the 12 months to 30 June barely moved from last year's $65.6 million, although that included $20.5 million of costs related to the $1.22 billion acquisition of UK manufacturer John Guest.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $150.9 million, in line with guidance of $150 million - $155 million. Net sales rose 27.8 per cent to $769.4 million, an increase of 28 per cent on fiscal 2017.

No-moat rated Reliance's fiscal 2018 results were in line with Morningstar's bottom line expectations. 

Reliance full year result shark

The result was boosted by a one-time strong rollout of Reliance products in Lowe's stores across the US, double digit growth in sales led by SharkBite Push-Top-Connect, a range of push-fit plumbing fittings, and an uplift in sales from an unseasonably cold North American winter in early 2018.

Reliance now expects fiscal 2019 EBITDA to be in the range of $280 million - $290 million. This was about 5 per cent below Morningstar's prior forecasts.

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The company expects the integration of John Guest to result in more than $30 million in annual cost savings by the end of 2019/20, compared to a previous estimate of $20 million.

While Morningstar views the John Guest acquisition as positive, and predicts the Americas segment will be a "solid growth opportunity", the Australian business is one area where they anticipate revenues will retreat.

"A strong period of new housing construction has seen a boom for the industry," Morningstar director of equities research Adam Fleck says.

"However, we expect continued softening over the near term as the Australian residential construction picture weakens."

Reliance shares, which had almost doubled in value over the past year amid surging sales and global expansion, fell as much as 18.6 per cent in early trade to levels last seen three months ago. At Monday’s close, Reliance was down 8.66 per cent at $5.66.

Morningstar has increased its fair value estimate by 6 per cent to $3.60, reflecting incremental synergy benefits within John Guest, but still views shares as overvalued.

Performance highlights:

  • Net Profit up 0.6 per cent to $65.99m
  • Revenue up 27.9 per cent to 769.38m
  • Fully-franked final dividend 3 cents/share, unchanged

 

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Emma Rapaport is a reporter for Morningstar Australia.

With AAP. 

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

. Emma Rapaport is a reporter for Morningstar Australia.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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