Why the Reliance (ASX:RWC) share price is storming 7% higher today

The Reliance (ASX: RWC) share price is surging after the company announced strong growth in its first half trading update for FY21.

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The Reliance Worldwide Corporation Ltd (ASX: RWC) share price is surging more than 7% higher after the company announced its trading update for the first half of FY21.

In the opening minutes of trade, the Reliance share price shot up to an intraday high of $4.59. However, its shares have since retreated to $4.40, up 7.2% at the time of writing.

How did Reliance perform?

The Reliance share price is firmly in positive territory after the plumbing parts company reported strong growth across all regions of the business.

For the period ending December 31, Reliance delivered total net sales of $642 million. This represented a 13% lift on the same time last year, and a 17% increase on a constant currency basis.

Looking at the segment performance, repair and remodel markets experienced robust demand through retail and hardware channels in the United States. This reflected a 16% jump on the prior corresponding period (PCP).

Across Asia Pacific, sales rose 10%, underpinned by new Australian housing construction and remodel sectors. Inter‐company sales inched 13% higher on the back of continued demand from the Americas region.

As a collective, Europe, Middle East, and Africa saw their sales advance 9% following the relaxation of the United Kingdom’s government COVID-19 restrictions.

Earnings before interest, tax, depreciation and amortisation (EBITDA) is forecast to be in the range of $164 million and $167 million. The anticipated result will come in above 30% above the EBITDA achieved on PCP.

Reliance noted that cost reduction measures implemented over the first-half have resulted in improved margins. It highlighted that on a run-rate basis, it expects $25 million in annual savings for FY21.

In addition, net debt also decreased by $76 million with the company focused on paying back its existing loans. In-turn, Reliance’s leverage ratio fell to 0.88 times from the recorded 1.57 times at the end of December 2020.

The group advised that it will release its half-year financial results on February 22, 2021.

Management commentary

Reliance group CEO Heath Sharp welcomed the positive result, saying:

The first half of the 2021 financial year has undoubtedly been a strong period for RWC and we are pleased with how the group has performed in demanding circumstances.

Given the continuing uncertainties in all our markets because of COVID‐19 we would caution against extrapolating the first half sales performance for the full year. We note that copper cost increases will negatively impact earnings in the second half and currency translation impacts may also adversely impact reported earnings.

A year in review for the Reliance share price

The Reliance share price took a steep dive in the March COVID-19-related crash last year, falling to as low as $1.63. Since then, its shares have been in recovery, moving upwards to close in on its 52-week high of $4.86 last January.

In comparison to this time last year, the Reliance share price has recovered last year’s losses and is up 0.3%.

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Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Reliance Worldwide Limited. The Motley Fool Australia has recommended Reliance Worldwide Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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