The Reliance Worldwide Corporation Ltd (ASX: RWC) share price will be on watch today after giving a trading update for the first half of FY21.
Reliance Worldwide has a variety of plumbing products. SharkBite, which is brass push-to-connect plumbing & heating systems. It also sells plastic versions (called Speedfit). Reliance Valves are pressure and temperature control valves.
RWC update
RWC said that its net sales for the six months to 31 December 2020 were 13% higher than the corresponding period to $642 million. There was 17% growth of sales in constant currency exchange terms. The growth continued after the first quarter.
RWC was pleased to report that there was growth in every region. Americas net sales grew by 16%, with the USA recording strong growth through retail and hardware channels driven by strong demand in the repair and remodel sectors.
Asia Pacific sales rose 10%, with external sales up 8%. Europe, Middle East and Africa (EMEA) sales grew 9%. There was a strong recovery in sales after the relaxation of UK government restrictions to control the spread of COVID-19.
EBITDA (EBITDA explained) is expected to be in the range of $164 million to $167 million. This would represent growth of at least 30% compared to the prior corresponding period.
Balance sheet
RWC said that its net debt has reduced by $76 million since 30 June 2020. The debt leverage ratio has reduced from 1.57 times to 0.88 times at 31 December 2020.
Management comments
RWC CEO Heath Sharp said: “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 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 FY21.”
Summary thoughts
RWC has seen strong demand, who knows how long it will be this strong? The company warned that increased copper costs will hurt earnings in the second half, as well as the foreign currency exchange.
Considering the RWC share price is almost back to its pre-COVID price, I don’t think it looks like a cheap recovery bargain. Though if its growth remains good then this price could be good.
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