Guess which ASX 200 stock is surging 9% on robust cash generation?

Investors are bidding up the ASX 200 stock amid a sharp decline in debt and an on-market share buyback.

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The S&P/ASX 200 Index (ASX: XJO) is up 0.3% during the Monday lunch hour, but this ASX 200 stock is racing ahead of those gains.

Shares in the plumbing and heating products company closed on Friday trading for $4.41. At the time of writing shares are swapping hands for $4.83, up 9.4%

Any guesses?

If you said Reliance Worldwide Corp Ltd (ASX: RWC), give yourself a virtual gold star.

ASX 200 investors are bidding up the company on the back of its half-year results for the six months ending 31 December (H1 FY 2024).

Read on for the highlights.

(Note, all figures in US dollars.)

ASX 200 stock leaps on debt reduction

  • Net sales of $590 million, down 2% from H1 FY 2023, in line with guidance
  • Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of $125 million, down 3% year on year
  • Adjusted net profit after tax (NPAT) of $68 million, up 0.3% on the prior corresponding half
  • Cash flow from operations of $152 million, up 61% with net debt falling by $142 million year on year
  • Interim dividend of 2.25 US cents per share unfranked, plus an on-market share buyback of $17.8 million

What else happened for Reliance Worldwide during the half?

Among the metrics that look to be sending the ASX 200 stock soaring today is the 61% year on year increase in cash flow. The company also noted its operating cash flow conversion was 121% of EBITDA, compared to 74% in H1 FY 2023. It credited the improvement to a reduction in working capital and lower inventory levels.

While Reliance Worldwide's sales in the Americas were in line with the H1 FY 2023, sales slipped in the Asia Pacific and EMEA regions. However, investors look to be taking this in stride today as it's in line with expectations management announced back in August.

Operating EBITDA (as opposed to adjusted EBITDA) was down 19% year on year to $113 million. This reflects the one-off costs related to the closure of its Supply Smart business in the Americas and restructuring in EMEA.

The ASX 200 stock also amended its distribution policy, while still intending to payout between 40% and 60% of annual NPAT. The new policy will see around half of the distributions delivered via dividends with the other half coming in the form of on-market share buybacks.

What did management say?

Commenting on the results sending the ASX 200 stock surging today, CEO Heath Sharp said:

We delivered sales ahead of expectations in the Americas, with new product sales underpinning our stable revenue performance. We have continued to execute strongly in rolling out SharkBite Max and PEX-a, as well as gaining increased traction with other new products such as EZ-Flo gas appliance connectors.

In Asia Pacific external sales were down 4%. While new housing starts in Australia were 15% lower, repair and remodel volumes continued to be relatively stable…

Our strong cash generation has enabled us to comfortably fund the acquisition of Holman Industries from our existing debt facilities.

What's next for the company?

For the 2024 financial year, the ASX 200 stock expects net sales to be down by low single-digit percentage points compared to FY 2023. Reliance Worldwide said it is targeting stable operating margins and continued strong operating cash flow generation.

How has the ASX 200 stock been tracking?

It's been a good year for Reliance Worldwide shareholders.

The ASX 200 stock has gained 36% in 12 months, not including dividends.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Reliance Worldwide. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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