Consensus community valuation
$3.17
Average Intrinsic Value
19.6%
Undervalued by
Active Member Straws
#Financials
Added 6 months ago

24 February 2020

RWC ANNOUNCES RESULTS FOR SIX MONTHS ENDED 31 DECEMBER 2019

  1. Reported net sales up 5% to $569.3 million
  2. Reported net profit after tax of $50.1 million
  3. Adjusted net profit after tax of $63.7 million
  4. EBITDA of $126.3 million
  5. Strong cash generation with net cash from operating activities up 163% to $112.8 million and operating cash conversion of 105% of EBITDA
  6. Continued sales growth in the Americas, particularly in retail and hardware channels
  7. Net external sales growth in the UK despite weaker market conditions
  8. John Guest synergy benefits of $12.3 million achieved in first half, an increase of $7.5 million on prior period Interim dividend of 4.5 cents per share, up 13%
  9. Full year Adjusted net profit after tax expected to be in the range of $140 million to $150 million

REVENUE

  • Net sales were $569.3 million, up 5% on the prior corresponding period ended 31 December 2018 (“prior period”). This growth rate was significantly influenced by currency translation effects, with net sales growth on a constant currency basis of 0.4%.
  • Reported net sales growth in the Americas was 7%, while sales growth on a constant currency basis was 1.4%.
  • EMEA’s reported sales were 1% higher, and 1% lower on a constant currency basis. RWC’s UK operations recorded positive external net sales growth in core plumbing and heating despite Brexit uncertainty and weakness in residential construction and remodel activity.
  • Asia Pacific external sales were modestly higher despite significant declines in residential construction activity in Australia.

EARNINGS

  • Reported net profit after tax of $50.1 million, down 22% on prior period.
  • Adjusted net profit after tax of $63.7 million, down 21% on prior period. Adjusted net profit after tax comparatives reflect: amortisation of certain intangibles for taxation purposes under longstanding US tax rules that are not amortised for accounting purposes under accounting standards ($7.9 million), and an additional net tax expense item ($5.7 million) relating to reassessment of certain tax items for prior years.
  • Reported earnings per share of 6.4 cents, down 22% on the prior period.
  • Adjusted earnings per share of 8.1 cents, down 21% on the prior period.
  • Reported EBITDA of $126.3 million, down 2% on the prior period.

OTHER HIGHLIGHTS

  • Continued realisation of John Guest synergies totalled $12.3 million in the period , an increase of $7.5 million over the prior period. Total annual synergy realisation remains on track to exceed $30 million on a run rate basis by the end of FY2020.
  • Continuous improvement and procure ment initiatives delivered $1.5 million in cost reduction benefits during the period.
  • Strong cash generation with net cash flow from operating activities up 163% to $112.8 million.
  • Earnings cash conversion of 105% for the period, up from 58% in the prior period.
  • Net debt of $394.7 million at 31 December 2019; reduced by $31.9 million since 30 June 2019.
  • Reduction in leverage, with Net Debt to EBITDA ratio down from 1.67 to 1.57 times.
  • Interim dividend of $35.6 million, being 4.5 cents per share (prior period: $31.6 million, being 4.0 cents per share)
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#1H20 Result
Added 5 months ago

Reliance reported a weak result, particular at the earnings line. Revenue was decent at 5% growth, but flat in constant currency. Reported EBITDA was down 2% (adjusted EBITDA down 8%) and Reported NPAT was down 22% (adjusted NPAT down 21%).

There was a significant deterioration in margin this period at both the EBITDA and NPAT lines. The USA cycled a strong sales period (14% in the pcp) as the market prepared for a winter freeze that did not reoccur in 2018/2019. In this regard, flat sales across the group is respectable.

In addition to flat sales, EBITDA margin was soft due to:

  • A slight increase in COGS,
  • Negative impact from product mix shifts and lower than expected manufacturing volumes.
  • Sales of new products were lower than expected and has triggered a reevaluation of how RWC approaches new product development.
  • Absence of Other Income present in the pcp
  • Lower raw materials costs (largely copper) helped offset some of the above  

NPAT was down significantly due to, effectively, incorrect estimates of tax to be paid in prior periods. The restatement in the current period gave rise to an adjustment of $5.7m and a tax expense of $5.7m recognised in the tax payable line in this period. This blew out the effective rate to 40%.

On the conference call, management commented on market share gains in SharkBite in the USA despite the movements by Fergusons. Revenue in the USA has always been lumpy and it depends on what is going on with new outlets, users, products etc. in FY19, half on half was drastically different. So taking out the one offs from the prior period growth was in the low single digits. This should be expected to go forward. Expect 2 completely different halves this year.

New products have always been important for the business and when you consider SharkBite compared to the overall business it is a smaller percentage as it used to be so absolutely the growth of those new products will become proportionally more important going forward. That said, SharkBite’s strong growth underpins the business and there is still a big runway for growth left in the story.

RWC downgraded guidance by 8% at the midpoint from NPAT of $140m-$150m, down from. $150-165m. This implies EBITDA of $265-280 (post lease accounting impacts). 

Long term thesis remains intact and valuation remains supportive with a sharp PE contraction from 23x to 19x resulting in a 25% sell off on an 8% NPAT downgrade. 

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