Reece Ltd (ASX: REH)

Reece Ltd is an Australian listed entity that supplies plumbing, bathroom, heating, ventilation, air-conditioning, waterworks, and refrigeration products. It serves customers in the trade, retail, commercial, and infrastructure markets.

Investment Rationale – SELL at AUD 18.47

• Overvalued Multiples: On a forward 12-month basis, key trading multiples (EV/Sales, EV/EBITDA, Price/Earnings, Price/Book, and Price/Cash Flow) are higher than the median for the Homebuilding & Construction Supplies industry.
• Subdued Volume: The Company witnessed a softening of sales volume in late 2022, and this trend is expected to continue in the short term amid heightened inflation and rising interest rates.
• Technical Indicator: REH is trading nearly at its 52-week high, while the momentum oscillator 14-day RSI (~61.68) is trading around the overbought zone; and thus, price can face correction in the short-term.
• Macroeconomic Risks: REH's performance is susceptible to supply chain disruption, volatile equity market, rising interest rates, inflationary pressure, global economic recession,

REH Daily Chart

 (Source: REFINITIV, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY24E) (Illustrative)

Considering that the notional gains, resistance levels, uncertain demand prospects, it is prudent to book profits at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current price of AUD 18.47 (as of 22 May 2023, at 10:25 AM GMT+10).

Note: This report may be updated with details around fundamental and technical analysis, price/ chart in due course, as appropriate.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 22 May 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Dividend Yield may vary as per the stock price movement. 

Technical Indicators Defined: -

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

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

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.

Disclaimer

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