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Reliance Worldwide delivers 80% increase in half year profits

The Reliance Worldwide Corporation Ltd (ASX: RWC) share price will be one to watch this morning after the plumbing parts company released its half year results.

Here’s how Reliance Worldwide performed in the first half compared to the prior corresponding period:

  • Net sales increased 50% to $544.2 million.
  • Net sales (excluding John Guest) up 7% to $389.4 million.
  • Adjusted EBITDA increased 65% to $130.8 million.
  • Adjusted EBITDA (excluding John Guest) down 3% to $77.2 million.
  • Adjusted net profit after tax up 80% to $74.9 million.
  • Adjusted earnings per share up 20% to 9.6 cents.

For those that are wondering, the adjusted result strips out one-time items such as integration costs that have been expensed, a John Guest fair value inventory unwind charge, and the impact of adopting new revenue accounting standards.

What happened in the first half?

I felt this was a reasonably mixed half from Reliance Worldwide. Had it not been for the $1.2 billion John Guest acquisition, sales growth would have been just 7% and EBITDA would have been 3% lower on the prior corresponding period.

One reason for this was a one-off supplier issue in the Americas segment which impacted EBITDA by $3 million.

In addition to this, the negative impact of higher input costs during the half. This was largely down to higher copper prices in the range of US$6,800 to US$7,100 per tonne compared to spot rates of US$5,600 to US$5,900 per tonne in the prior corresponding period.

The good news is that prices have since reversed and management expects an average full year copper price in line with expectations at US$6,500 per tonne.

What’s next?

With Brexit on the horizon and the company having meaningful exposure to the UK through its John Guest business, management provided an update on the potential impacts of it on its business.

At present management does not believe that Brexit will have a materially negative impact on its business, but it will continue to monitor the situation as things develop.

As a result, it has reaffirmed its full year EBITDA guidance of $280 million to $290 million. This will mean 53% to 55% of its EBITDA is generated in the second half and is due to the pattern of earnings at John Guest, the progressive accumulation of synergy benefits, and cyclical commodity costs benefitting second half cost of goods sold.

Should you invest?

I’m a big fan of Reliance Worldwide and feel it could be a great long-term investment, but I wouldn’t rush in and buy its shares today. Instead, I would let the market digest these results and consider picking up shares once the dust settles.

In the meantime, Reece Ltd (ASX: REH) and Seven Group Holdings Ltd (ASX: SVW) could be worth a closer look.

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