Result was broadly in line with our expectations
FY18 underlying EBITDA (excluding John Guest) rose 25% to A$150.9m (in line with
Morgans and +1% vs Bloomberg consensus), while underlying NPAT climbed 20% to
A$78.6m (+3% vs Morgans and -2% vs Bloomberg consensus).
Group EBITDA margin
grew 20bps to 20.3%. Asia-Pacific delivered EBITDA growth of 10% which was broadly
in line with our forecast while EMEA EBITDA (excluding John Guest) grew to A$2.5m
(vs A$0.5m in FY17).
The key disappointment however was the Americas division.
Despite delivering a 28% increase in EBITDA (including A$6m one-off charge due to US
import duties) the result was 7% below our expectations.
The balance sheet remains
strong, with ND/EBITDA (including John Guest) falling to 1.6x (FY17: 2.0x) while
operating cash flow grew 11% to A$80.1m due to the growth in earnings despite an
increase in working capital. Total DPS of 6.5cps was below our forecast (7.0cps) and
Bloomberg consensus (7.1cps).
Increased expectations for John Guest synergies
Management advised that synergies to be achieved following the John Guest acquisition
are expected to be greater than A$20m by FY19 and A$30m by FY20 (on a run rate
basis). This represents a 50% increase on previous guidance of A$20m.
While some of
the increase will come from revenue synergies, most will come from extra cost savings
(eg. procurement, operating efficiencies, business integration, SG&A etc).
Over time we
expect RWC to deliver greater revenue synergies as it introduces new products globally
with opportunities to leverage the network to enter new markets and channels.
view, while execution risk remains the key to the John Guest acquisition, it was
nonetheless good to see the integration process get off to a good start.
Decreases to earnings forecasts
We reduce FY19F EBITDA by 4% to A$287m vs management guidance of A$280-
290m. Our FY20F and FY21F EBITDA forecasts decrease by 5% and 3% respectively.
Maintain Add rating
Post updates to earnings forecasts RWC is trading on 26.7x FY19F PE and 1.9% yield.
We continue to view RWC as an attractive investment proposition given its strong
market positions, experienced management team and strong earnings growth profile (3-year EPS CAGR 26%).
We hence maintain our Add rating on a lower PE-based target (Morgans client access only).
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