Reece Ltd (ASX: REH) has just announced a trading update of the first quarter of the 2019 financial year.
Reece is the largest bathroom business in Australia, but it also generates earnings from civil engineering, irrigation and its HVAC division.
The plumbing business announced a 12.3% increase of sales revenue for Reece Australia and New Zealand. The revenue came in at $732 million compared to $652 million last year. The growth was aided by like-for-like sales growth of 6.1% – very solid for a large, mature business.
The company recently acquired MORSCO, which is a US-based plumbing, waterworks and HVAC business. It’s essentially a US version of Reece that services the ‘sun belt’ southern region of the US. The acquisition nearly doubled Reece’s revenue.
MORSCO achieved quarterly sales of $646 million, which compares to the annual revenue of $2.3 billion that MORSCO generated last year, according to Reece.
Reece also said that earnings before interest, tax, depreciation and amortisation (EBITDA) is forecast to be between $250 million to $260 million for the six months to December 2018. In FY18 Reece generated EBITDA for $378 million, however there are lot more shares on issue now, so the EBITDA per share growth figure won’t be as impressive as the above numbers suggest.
I like Reece as an investment idea. Its earnings are becoming more diversified, it has long-term and well-aligned management and the US is a large growth opportunity
Whilst I have my eye focused on a few other growth shares at the moment, the falling Reece share price could make it a buy for me over the next couple of years.
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Motley Fool contributor Tristan Harrison 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 Scott Phillips.