Why I think Reliance Worldwide Corporation Ltd shares are a little expensive right now

The Reliance Worldwide Corporation Ltd (ASX: RWC) share price rose 7% to $4.44 after the company released its half year results this morning. Here’s what you need to know:

  • Revenues grew 28% to $362.6 million
  • Net profit after tax grew 18% to $41.5 million
  • Earnings per share up 19% to 8 cents per share
  • Dividends per share of 3.5 cents fully franked
  • Sharkbite Push To Connect (PTC) fittings growing sales at double digits
  • Expansion into new markets via EvoPEX and Holdrite products
  • Spending on capital expansion to meet forecast demand for products
  • Outlook for full year earnings before interest, tax, depreciation and amortisation (EBITDA) of $150 million to $155 million (assuming that currency rates and costs stay constant)
  • Reliance expects its tax rate will be 4% to 6% lower by the time US corporate tax rates take full effect.

So what?

It was a strong year for Reliance Worldwide, and I’m thinking maybe I should have been a bit more aggressive when I identified the company as worthy of further investigation at $2.91 last January.

Reliance has clearly shrugged off competition as well as the loss of exclusivity at Home Depot. The sales rollout to Lowes has gone well and SharkBite continues to deliver double-digit sales growth. Reliance is also reporting growth in EvoPEX and Holdrite sales, two ancillary product lines that complement SharkBite.

Reliance’s strong result came despite higher materials (e.g. copper) input costs and a weaker U.S. dollar, a reminder that the company is a manufacturer with a reliance on commodity prices.

Now what? 

Management provided an outlook for significant investment in sales and marketing functions in the second half, a sign that Reliance will be looking to maximise the penetration of its SharkBite product, which is clearly a winner. Reliance stated that it expects full year EBITDA of around $150 million to $155 million, compared to $79.3 million in this half.

Reliance is clearly on a roll, but a lot of that is built into the valuation, and the company faces a variety of threats from competing products and commodity prices. While I like the company, I’m not sure it’s a buy at the moment.

OUR #1 dividend pick to grow your wealth over the new financial year is revealed for FREE here!

Financial year 2018 is here and The Motley Fool's dividend detective Andrew Page has revealed his must buy dividend share to grow your wealth in 2018.

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.