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.

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. 

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