Reliance Worldwide (ASX: RWC) is a “global provider of water control systems and plumbing solutions for domestic, commercial and industrial applications”. Since its formation in 1949 Reliance has developed operations throughout Australia, New Zealand, North America and Europe.
The company’s main products are push-fit plumbing fittings, reticulation systems and water control valves. These products are sold throughout RWC’s primary markets and exported into Asia, South America and the Middle East.
A variety of other products are sold in the ANZ and North American markets. Globally, RWC holds over 700 IP assets including patents, trademarks and designs.
In April last year, Reliance raised $919m via an IPO priced at $2.50 per share. The stock has traded between a low of $2.68, and a high of $3.555 – both events occurred this year. Among the company’s major achievements since listing, Reliance Worldwide has:
- Signed a sole supplier contract w ith Lowe’s to supply SharkBite push-to-connect fittings to over 1,700 home improvement stores
- Declared a maiden dividend and forecast FY17 NPAT “to be in line with, or slightly ahead of Prospectus NPAT”
- Acquired HOLDRITE, a market leader in the US for engineered plumbing product solutions
In light of the$125.2m acquisition of HOLDRITE, Morgans recently published an updated research report for RWC.
Morgans believe the transaction is “complementary” due to product diversification, HOLDRITE’s position in the North American new construction market, and the different channel expertise of each party.
According to the analyst, HOLDRITE’s wholesale distribution channel offers Reliance Worldwide an avenue to boost product sales. Meanwhile, the strength of RWC’s retail channel is cited as likely to help increase sales of HOLDRITE’s products.
The broker also highlights increased capabilities with respect to innovation and R&D.
HOLDRITE’s market leading position and strong revenue growth has led Morgans to increase their estimates for FY18 NPAT and EPS by 6.8%.
In terms of potential share price risks, the broker lists:
|Factors||Re-rating Potential||Downside Potential|
|Forex movements||AUD/USD falls||AUD/USD increases|
|Raw material costs||Below forecast||Above forecast|
|Local and US housing markets||Conditions improve||Conditions deteriorate|
|Supplier deals (Lowe’s / THD)||Volume gains exceed expectations||Volume losses exceed expectations|
At the stock’s current price, Morgans believe the price multiple already takes into account RWC’s market leading position, growth pipeline, financial performance and management expertise.
The broker maintains a hold recommendation on RWC with a price target of $3.43.
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