Reliance Worldwide Corporation Limited (RWC)
HOLD

Dribble

 21 Aug 2023
Sector: Industrials

RESULT ANALYSIS

Need To Know

  • FY24 revenue guidance down low single digits, stable margins. Pointing to consensus downgrades.
  • RWC digging into costs to offset weak revenue trends.
  • Weak new housing markets dragging into FY24.

Investment Implications

Result overview:

FY23 EBITDA US$274.6m, consensus US$273.4m

Net profit US$156m -4% on pcp

Final dividend US5cps, full year US9.5cps

FY23 result. RWC was able to get price increases of 6.5% across the year but the net sales increase of 6% implied little to no volume growth. 2H23 headwinds had been expected and this included the impact of a higher USD on reported APAC and EMEA results. RWC dug US$18.3m of savings out of the business by the end of FY24 in line with its previous target and expects US$15m of annualised cost savings thereafter. That helped boost Americas EIT margins by 100bp to 17.9%. Slower housing construction dampened sales in Australia so that APAC EBITDA declined -20% to US$47.2m against last year and margins fell 330bp to 16.7%. Higher UK prices helped EMEA revenue to increase 3% with UK plumbing and heating sales up 12%. But lower Continental sales bit into EITDA which was down -2% on lower margins (-170bp).

Net debt of US$435m brings leverage to 1.69x EBITDA. FY23 capex of US$42.5m will increase to US$55-60m as RWC shifts SharkBite Max production from Australia to the USA along with the other new product PEX-a.

Outlook. The repair and maintenance market remains resilient but is skewed to Smaller projects. Remodelling activity in the US is expected to decline mid-single digit in FY24 on lower housing turnover. In total, RWC sales could be down by low single digit percentage points. In APAC, new housing is 60% of end-market exposure and in a weak market, sales are expected to be lower as it will be in EMEA.

Investment View

RWC is reviewing its capital management approach. The existing policy has net debt to EBITDA at 1.5-2.5x with a target dividend payout ratio of 40-60% (mostly unfranked).

RWC’s cost and margin focus is important while its end markets are yet to pick up. With little impetus and a FY24 PER of 14.5x, there is no obvious catalyst to change our Hold recommendation.

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Stock Overview

Share Price

Company Overview

RWC designs, manufactures and supplies water flow and control products and solutions.

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