Reliance Worldwide Corporation Limited

Company Overview: Reliance Worldwide Corporation Limited (ASX: RWC) is involved in the designing, manufacturing and supplying of high-quality, reliable and premium branded water flow, control and monitoring products and solutions for the plumbing and heating industry. The company was listed on ASX in April 2016.

RWC Details

Positive Prospects of Market to Aid Future Business Growth: The company operates a portfolio of strong brands and is delivering smart solutions that are the first choice of plumbers. The company manufacture more than 80% of its products by itself, which enables strong control of the supply chain. The company is optimistic about key markets from a demand perspective. The demand for the product is being aided by core repair and maintenance concentration and enhanced by increased expenditure on home remodelling activity as well as heightened levels of new home construction.

Financial Insights: During the nine months period ended 31 March 2022, the company experienced volume growth in the Americas and APAC regions. In Addition, the company's sales growth has been backed by revenue from the new products during the same period. The below picture gives an overview of the company’s performance during the period:

Financial Summary (Source: Analysis by Kalkine Group)

Business Updates: The following picture gives an idea of the recent appointment to senior management:

Business Updates (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 53.98% of the total shareholding, while the top 4 constitute the maximum holding. AustralianSuper and Bennelong Australian Equity Partners Pty. Ltd.  are holding a maximum stake in the company at ~10.90% and ~6.97%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During 1HFY22, the company recorded a current ratio of 2.87x against 2.51x in 1HFY21. EBITDA margin for 1HFY22 stood at 24% as compared to 21.6% of the industry median.

Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Macro-Economic Uncertainties: The company is exposed to risks arising from the uncertainties in relation to macroeconomic disruptions, which may hamper its operational performance.
• Loss of Customers: The company’s performance could be affected by the loss of key customers as there is no guarantee that the customers will continue with the business.
• Cost Pressure: The extreme growth in costs could impact its bottom line and may create supply chain issues.

Outlook: The company believes that it is well-positioned for future business growth. Looking forward, the company anticipates further price rise in Q4FY22 to offset cost inflation. In addition, the average price increases across the group are likely to be ~10% for the year.  The operating margins in Q4FY22 are likely to improve, and the company will continue to carry out cost savings initiatives in the near future. The company seems to be in a decent position to navigate key business challenges, which would be supported by customer needs with its local manufacturing operations and strong track record of class-leading customer execution. The company is hopeful that the new product launch will allow the business to continue its long-standing record of delivering above-market growth with quality margins.

Growth Opportunities (Source: Analysis by Kalkine Group)

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of RWC is trading below its 52-week low-high average of $3.460 - $6.610, respectively. The stock has been corrected by ~11.08% in the past three months. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering the supply chain issues and other material business risks, etc. For the purpose of valuation, a few peers like GWA Group Ltd (ASX: GWA), Boral Ltd (ASX: BLD), Adbri Ltd (ASX: ABC), and others have been considered. Considering the expected upside in valuation, rising sales, growing demand, synergies from the recent acquisitions, optimistic long-term outlook, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $3.760, up by ~2.45% as on 20 June 2022.

RWC Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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