Reliance Worldwide Corporation Limited

Team Veye | 08 Oct 2020 ASX - RWC
Reliance Worldwide Corporation Limited
Call Buy

Reliance Worldwide Corporation Limited (ASX: RWC) (“RWC”) is an Australia-based company engaged in the design, manufacture and supply of water flow control and monitoring products and solutions for the plumbing and heating industry. The Company’s segments include Asia Pacific, including Australia, New Zealand, Korea and China; Americas, including the United States of America and Canada, and EMEA, including the United Kingdom, Germany, Spain, Italy, Poland, France and Czech Republic. Its products include Fittings and Pipe, including plumbing fittings, piping and related products; Control Valves, including temperature and pressure relief valve; Thermostatic Products, including a range of thermostatic mixing valves, tempering valves and thermostatic cartridge, and Other Products, including underfloor heating components and kit systems, water meters, industrial pneumatic and hydraulic fittings, water mains connection fittings and repair sleeves and fire safety system products (Profile source: Reuters)

From the Company Reports

RWC provides Trading Update as part of investor strategy briefing

Reliance Worldwide Corporation Limited (ASX: RWC) (“RWC” or “the Company”) on 1 October 2020 provided a trading update for the period up to and including 25 September 2020. The update was provided as part of the Company’s investor strategy briefing, which Group CEO Heath Sharp and members of the senior leadership team presented this day.

(Chart source: TradingView)

Overall, sales performance in each of the three regions had continued to track in line with what was reported at the time of the FY2020 annual earnings announcement on 24 August 2020.

Sales in the Americas had continued to grow strongly in September with improved sales in wholesale channels and continued recovery in the Canadian market. US retail and hardware point of sales growth in September had been relatively consistent with July and August trends. The increased rate of sales growth in September was primarily explained by the carryover of orders from August as a result of general logistics timing, and one additional trading day in the September 2020 period versus the prior corresponding period. It did not currently expect this elevated level of demand to continue through FY2021 particularly as US Government COVID-19 stimulus measures wind down.

APAC external sales in September were up slightly, while intercompany sales volumes were also higher. Lower housing approvals and new dwelling commencements in Australia continued to be risks to sales growth for the

balance of the financial year.

(Chart source: Barchart)

EMEA had continued to see a recovery in volumes in the UK and Continental

Europe, with markets now largely reopened. Improved sales activity had been partly driven by pent-up demand following the COVID-19 lockdown period, particularly in the UK, and from channel partners rebuilding inventory levels which were depleted during the lockdown. The comparisons with the prior period also reflected the fact that August was seasonally the lowest sales month of the year due to the timing of European summer vacations, whereas this pattern was disrupted this year due to COVID-19. September sales also reflected one additional trading day compared with the prior corresponding period.

RWC Results for Financial Year ended 30 June 2020 reflect resilient core markets in the US and Australia and strong operating performance

Reliance Worldwide Corporation Limited (ASX: RWC) (“RWC” or “the Company”) on 24 August 2020 announced Reported Net Profit after Tax (“NPAT”) of $89.4 million for the year ended 30 June 2020. Adjusted NPAT of $130.3 million reflects charges for restructuring and asset impairments and adjustments for certain tax items and accounting treatments. Adjusted NPAT for the prior comparable period was $158.3 million. RWC will pay a final dividend of 2.5 cents per share in October concurrent with payment of the interim dividend which was deferred due to Covid‐19.

(Graphic Source – Company Reports)

  • Net sales of $1,162.4 million, up 5% on prior year
  • Reported net profit after tax of $89.4 million, down 33%
  • Adjusted net profit after tax of $130.3 million, down 18%
  • EBITDA of $217.9 million, including restructuring and impairment charges of $33.4 million
  • Adjusted EBITDA of $251.3 million, excluding restructuring and impairment charges, versus $277.0 million in the prior year
  • Strong cash generation with cash flow from operating activities up 56% to $278.3 million and operating cash flow conversion of 128% of EBITDA
  • Net debt reduction of $124.4 million  
  • Strong balance sheet with $511 million of available funding liquidity at 30 June 2020
  • Americas recorded 11% second half constant currency sales growth, 6% for the year  
  • Asia Pacific external sales up 2% for the year despite slowdown in Australian new residential construction
  • UK and European sales adversely impacted by Covid‐19 but gradual recovery evident towards year end
  • Final dividend of 2.5 cents per share, total dividends for FY2020 of 7.0 cents per share


During the year, cost reduction initiatives were undertaken to ensure the company was appropriately placed to pursue future profitable growth. In the US, the manufacturing facility in Tennessee was closed with production transferred to RWC’s main US plant in Alabama. A restructure of operations and administrative functions in the US was completed during the year, and a restructure of manufacturing and support activities in the UK was currently being undertaken. These initiatives, in conjunction with procurement savings and other efficiency measures, were expected to deliver annual cost savings of $25 million by the end of FY2021. A milestone achieved at the end of the year was the delivery of further John Guest synergies of $13.8 million, with annual synergies realised on a run rate basis of $31.3 million by year end. 

(Graphic Source – Company Reports)

Other Highlights

  • Strong service delivery performance in the US despite a surge in demand and global supply chain and logistics disruptions arising from Covid‐19.
  • John Guest synergies totalled $13.8 million for the year. Total synergy realisation since acquisition was $31.3 million on an annual run rate basis at the end of FY2020.
  • Strong cash generation with net cash flow from operations up 56% to $278.3 million.
  • Operating cash flow conversion of 128% for the year, up from 74% in the prior year.
  • Net debt of $302.2 million at 30 June 2020 a reduction of $124.4 million since 30 June 2019.
  • Reduction in leverage, with Net Debt to EBITDA ratio down from 1.67 to 1.39 times.
  • Final dividend of $19.8 million, being 2.5 cents per share. Total dividends declared for FY2020 of $55.3 million, being 7.0 cents per share (FY2019: $71.1 million, being 9.0 cents per share).
  • Comfortably compliant with all financial covenants in respect of all borrowing facilities.


Reliance Worldwide Corporation Limited (ASX: RWC)
Stock Overview
Sector Capital Goods
Risk Medium
Market Cap $3.46 billion
Share Volume 790.09 million
EPS (FY) $0.114
Yearly Dividend Yield  1.60%
Target Price (s) T1 $5.08    T2 $6.10
Stop Loss $3.80
Recommendation Buy
52 weeks High $4.760
52 weeks Low $1.630
CEO Mr Heath Sharp
Non Executive Director(s) Ms Christine Bartlett
Mr Russell Chenu


Market Risk Analysis

The US has been boosted by the surge in DIY activity and the return of construction activity to pre-COVID levels, but without further government stimulus measures, this growth is likely to slow. Some softening in the Australian market is also expected as the reduction in new housing construction approvals leads to lower building activity. In the UK there is uncertainty as to where underlying demand levels will settle once the pent-up demand for products and plumbing services had been satisfied.


Veye’s Take

Reliance Worldwide saw continued strong sales growth in the US with sales 22% higher in July than for the same month last year. In APAC, external sales are running slightly ahead of the same month last year, while intercompany sales are ahead driven by the strength of demand in the Americas. Sales for the first three weeks in August have continued to show positive momentum versus the prior corresponding period. RWC’s performance this year has been impacted by what occurred in the second half with Covid‐19, with sales trends varying by region reflecting the differing market responses to the pandemic. Cash flow from operations was up 56% to $278.3 million representing operating earnings cash conversion of 128%. This has enabled a further reduction in debt levels and consequently, leverage decreased to 1.39 times Net Debt to EBITDA from 1.67 times. During the year, cost reduction initiatives were undertaken to ensure the company is appropriately placed to pursue future profitable growth. These initiatives, in conjunction with procurement savings and other efficiency measures, are expected to deliver annual cost savings of $25 million by the end of FY2021. A milestone achieved at the end of the year was the delivery of further John Guest synergies of $13.8 million, with annual synergies realised on a run rate basis of $31.3 million by year-end. RWC has high quality earnings. RWC’s forecast earnings growth is 16.7% per year. Its earnings have grown significantly by 29.3% per year over the past 5 years. RWC’s revenue (5.4% per year) is forecast to grow faster than the Australian market (4.4%per year). RWC’s short term assets ($586.6m) exceed its short term liabilities ($241.2m). RWC’s short term assets ($586.6m) exceed its long term liabilities ($552.8m). RWC’s debt to equity ratio (27.1%) is considered satisfactory. Its debt is well covered by operating cash flow (62.7%). RWC’s interest payments on its debt are well covered by EBIT (9.3xcoverage). The stock is trading comfortably above its supports on its daily and monthly t/f. RSI, as well as MACD, are positive on both short term and long term charts. It is also trading above its MAs. It can have the potential to move up strongly in the medium term. The closure above $4.51 would provide the first confirmation.Veye recommends a "Buy" on “Reliance Worldwide Corporation Limited” at the current price of $4.27


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