Reliance Worldwide

About the author:

Author name:

By Alex Lu

Job title:

Analyst

Date posted:

24 June 2016, 2:13 PM

Sectors Covered:

Industrials

Key points

• Reliance Worldwide is the clear market leader in the brass push-to-connect (PTC) plumbing fittings category with around 80% market share (by volume) in the US.
• Growth opportunities include further penetration of brass PTC plumbing fittings products in the US, expansion into new markets (US construction) and global expansion.
• We forecast EBITDA growth of 23% in FY16 and 20% in FY17 (in line with the prospectus).

A leader in the plumbing field

Reliance Worldwide (RWC) designs, manufactures and supplies premium branded water flow and control products for the plumbing industry. RWC has established operations in the US, Australia, UK, Canada and New Zealand, and is building a presence in Europe. RWC's products are used in residential (houses and apartments) and commercial applications (including retail and office buildings, hotels and healthcare facilities). In our view, one of RWC's key competitive advantages lies in its strong market positions, with an estimated 80% share of the brass push-to-connect (PTC) plumbing fittings category in the residential market in the US under the well-known "Sharkbite" brand.

Strong pipelines of growth opportunities

RWC has a number of growth opportunities both in the US and globally. Given its ease-of-use and time savings benefits, we believe RWC will benefit from continued growth in PTC fittings products in the US over the next few years on the back of further penetration from the category. Other potential growth areas include expansion into new markets (ie. development of a new range of PTC products targeted at the US new residential and construction markets) and expansion into new geographic regions such as Europe, Latin America and South East Asia.

A track record of consistent earnings growth

RWC has a track record of strong and consistent revenue growth. It has achieved a revenue CAGR (constant currency) of 13% over the past 10 years. More recently (FY13-15), RWC has increased revenue and EBITDA at a CAGR of 22% and 54%, respectively. Management is forecasting 23% EBITDA growth in FY16 and 20% growth in FY17. Our forecasts are in line with this.

Investment view

While we are attracted to RWC's clear market dominance in the brass PTC plumbing fittings segment (80% market share), strong growth opportunities, highly experienced management team and impressive financial returns, we see these attributes as largely reflected in the current share price. Despite our neutral stance in the short term, we remain positive on RWC in the long term and would look to reconsider our view on share price weakness.

We initiate coverage with a Hold recommendation.

More information

Morgans clients can login to view our latest detailed report for Reliance Worldwide (RWC). Alternatively, please contact your nearest Morgans office for access.

Disclaimer(s): Analyst owns shares.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.