Reece (ASX: REH) has given the market a trading update about its first quarter of FY20, is the share price a buy?
The Reece Group operates the largest bathroom and plumbing supply business in Australia, Reece, as well as ten other businesses in related industries including irrigation, pools, civil works and HVAC-R (heating, ventilation, air conditioning and refrigeration). Reece began in 1920 when Harold Joseph Reece commenced selling hardware products from the back of his truck. Almost 100 years on, the company has grown to having 8,000 people in 800 branches across Australia, New Zealand and the US.
What Did Reece Report In Its Q1 F20 Update?
For the first three months of FY20 to September 2019, Reece said that it grew sales revenue by 8.8% to $1.5 billion compared to the September 2018 quarter. On a constant currency basis sales revenue grew by 4.9%.
Reece disclosed that Australia & New Zealand revenue grew to $738 million whilst in the US MORSCO revenue increased to US$518 million (AU$763 million).
However, despite the sales growth, EBITDA (click here to learn what EBITDA means) for the first half of FY20 is forecast to be in line with the result of December 2018 due to the current economic environment and Reece’s continued investment in “innovation and technology.”
Reece CEO and Managing Director Peter Wilson said: “In Australia, we’ve continued to grow our sales revenue in a moderating environment, while in the US we’re growing in-line with expectations.
“We expect to maintain the Group’s EBITDA in the first half of FY20, while continuing to invest in digital innovation and other initiatives.”
Is The Reece Share Price A Buy?
Today’s comments seem to suggest a reduction of profit margins this year. I’d hope to see those margins rebound in FY21 if conditions return to normal.
I’m impressed by the moves that Reece has done. It has become and industry heavyweight whilst making a compelling acquisition overseas.
Reece shares are up slightly in response to this news at the time of writing, I’d be comfortable making a small purchase today, but I’m wary of a downturn in both the US and Australia with how long this economic cycle has been going.
I feel better mostly investing in the reliable shares in the free report below instead.
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