Reliance Worldwide Corporation Limited (RWC)
HOLD

Plugged

 20 Feb 2023
Sector: Industrials

1H23 RESULT

Need To Know

  • Small market beat on EBITDA at US$128.1m
  • EBITDA margins improving but market demand subsiding in 2023
  • Interim dividend US4.5cps (A6.493cps), 10% franked, payment 6 April

A commendable result in a difficult market for Reliance Worldwide, but headwinds will test the resolve to keep costs under control.

Result. 1H23 EBITDA of US$128.1m, +2.1% on pcp and 1.6% ahead of consensus. Group EBITDA margin improved sequentially, supported by cost-out initiatives as $8m targeted for FY23f and $15m in FY24f. A one-off $4-5m cost to implement the cost reduction will show up in 2H23f. EZ FLO synergies of US$10m are still expected to accrue by the end of FY24f.

Americas. Revenue now includes EZ FLO, total US$427.3m +28% on pcp. Volumes ex EZ FLO were -2% implying price increases of about +8%. No material impact from the US winter freeze was seen.

EMEA. A solid market beat at US$40.8m with stable volumes in the UK implying external sales growth of 10% included a price rise of the same magnitude. Continental Europe sales volumes were down but total sales ended basically flat and EBITDA margin rose a healthy 516bp from 1Q23 to 34.4% in 2Q23.

APAC. Strong volumes in Australia were offset by weaker sales in China and Korea. Management did say Australian volumes were ‘slowing considerably’ in the latter part of the period.

Outlook. 2H23 headwinds likely from slowing economic activity could impact RWC key markets. RWC cites rising interest rates, declining home values and inflationary pressures as reasons for headwinds. Some cost pressure shave eased, particularly shipping and logistics, but others have not. RWC is expecting lower 2H23 volumes in the Americas for these reasons.

Key assumptions in 2H23f include improving EBITDA margins from lower commodity prices.

Investment View

Repair and Maintenance (R&M) is less cyclical than new residential construction, according to RWC. There is an element of truth to that, but R&M is not immune from waning consumer confidence.

RWC is throttling back hard on costs to help preserve and even grow margins.

The company will need to consider some price rises but making these stick will not be easy.

A finely balanced outlook only warrants a Hold recommendation, in our view.

Figure 1: 1H23 RESULT

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Stock Overview

Share Price

Company Overview

Reliance Worldwide Corporation designs, manufactures and supplies water flow and control products and solutions.

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