What was in the Reece FY21 result?
Reece reported that its sales revenue increased 4% to $6.27 billion. In Australia and New Zealand, revenue increased by 9% to $3.15 billion, while in the US, revenue went up 11% to US$2.33 billion on a constant currency basis.
The plumbing business revealed that normalised earnings before interest, tax, depreciation and amortisation (EBITDA), which excludes acquisition costs, rose 11% to $720 million. Earnings before interest and tax (EBIT) grew 20% to $493 million.
The Australian division saw the EBITDA margin expand by 100 basis points to 15.7%. Management explained this happened because of a combination of sales volume and operational discipline.
Net profit after tax (NPAT) increased by 25% to $286 million, although earnings per share (EPS) rose by 10% to 44 cents.
Reece decided to double the final dividend per share to 12 cents per share. That sent the total dividend per share up by 50% to 18 cents per share. At the current Reece share price, that translates to a grossed-up dividend yield of 1.2%.
The Reece CEO and managing director Peter Wilson said:
FY21 presented many challenges. The evolving environment due to the pandemic, the Texas freeze and the Australian bushfires tested us. But it’s also shown how resilient our business is.
This year, we cemented our 2030 vision – to be the trade’s most valuable partner, helping them succeed in a digital world. We’ll do this by being brilliant at the fundamentals of our operations, being both strategic and opportunistic to grow the business and fostering a culture of innovation. This approach, coupled with construction activity being at an all-time high, and our customers being busier than ever, has led to record results for the group.
What do brokers think of the Reece share price?
Brokers seem to be fairly negative on the business’ valuation.
For example, Morgan Stanley has a price target on Reece of $16. That suggests the broker thinks the Reece share price will fall almost 30% over the next 12 months.
Morgan Stanley notes that Reece is doing well, but it is priced too expensively, in the broker’s opinion.
Based on the broker’s projection, Reece is valued at 35x FY23’s estimated earnings.
Citi also rates the Reece share price as a sell, with a price target of $13.50. That suggests that Reece shares could fall as much as 40% over the next 12 months, if the broker is right.