Reliance Surprise Sees Share Price Spike

Shares in Australian-based global plumbing supplies giant, Reliance Worldwide Corp (RWC) jumped more than 6.5 percent after the company surprised with a better than expected trading update for the six months to December.

The bottom line for investors was the better than forecast 30% rise (at least) in earnings before interest, tax depreciation and amortisation (EBITDA) for the half off a smaller 13% improvement in sales.

This indicated better cost control and fatter profit margins and the shares ended up 6.5% at $4.37.

Net sales for the half were $642 million with EBITDA expected to be in the range of $164 million to $167 million, “up at least 30%” from the six months to December, 2019.

RWC CEO Heath Sharp said in Wednesday’s statement that RWC had performed strongly in the first half of the 2021 financial year with every region recording strong sales and operating earnings growth and the Group continuing to generate strong cash flows.

“We achieved 13% net sales growth for the half, and 17% net sales growth on a constant currency basis. This has translated into strong operating earnings performance, with EBITDA expected to be up by at least 30% on the prior corresponding period.

“EBITDA margins have increased as a result of the strong operational leverage driven by higher volumes, and each region is expected to report strong margin expansion for the period. Despite the challenges presented by the COVID‐19 pandemic, we have kept all our manufacturing facilities operating and our focus on execution has enabled us to meet the increased demand we have seen across our markets.

“At the same time, cost reduction initiatives have also helped to lift margins. We delivered cost savings in the first half and are on track to meet our target of $25 million in annual cost savings on a run rate basis by the end of the 2021 financial year. Cash generation has been another feature of the half with a further reduction in net debt of $76 million in the period. RWC’s leverage ratio at 31 December 2020 had reduced to 0.88 times from 1.57 times a year ago.

“The first half of the 2021 financial year has undoubtedly been a strong period for RWC and we are pleased with how the Group has performed in demanding circumstances. Given the continuing uncertainties in all our markets because of COVID‐19 we would caution against extrapolating the first half sales performance for the full year. We note that copper cost increases will negatively impact earnings in the second half and currency translation impacts may also adversely impact reported earnings”, Mr Sharp said.

RWC said it saw a 16% rise in net sales growth in the Americas “with the USA recording strong sales growth through retail and hardware channels driven by strong demand in the repair and remodel sectors.”

Asia Pacific sales were up 10%, “with external sales up 8% reflecting strong Australian new housing construction and remodel markets.”

Inter‐company sales were up 13% (up 20% on a constant currency basis) due to the strength of demand in the Americas.

Sales in Europe, the Middle East and Africa rose 9% “with a strong recovery in sales following the relaxation of UK Government restrictions to control the spread of COVID‐19 at the beginning of the period.”

 

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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