If you are wanting exposure to the building products industry, then there are a few ways to do it on the ASX 200 index.
One way is through buildings products giant Brickworks Ltd (ASX: BKW) and the another is through plumbing parts company Reliance Worldwide Corporation Ltd (ASX: RWC).
But only one of these is worth buying right now according to the team at Macquarie Group Ltd (ASX: MQG). Let's find out which one the broker is bullish on.
Reliance Worldwide or Brickworks shares?
According to a note out of the investment bank this morning, its analysts think that investors should be skipping Brickworks and focusing on Reliance Worldwide.
While Macquarie is a fan of Brickworks, it believes its shares are fully valued following a strong rise since the announcement of plans to merge with Washington H Soul Pattinson & Co Ltd (ASX: SOL).
Commenting on the merger and its valuation, the broker said:
Brickworks and Washington H. Soul Pattinson & Co (SOL) have announced the intent to merge. The removal of a complex cross-holding is a key positive. Tax authority rulings are a key condition, which mgt appear confident of. A strong price move by both BKW and SOL lift our SOTP-based TP to $32.20ps. We maintain a Neutral opinion on BKW, with the merger economics now key.
As mentioned above, Macquarie currently has a neutral rating and $32.20 price target on Brickworks' shares. Based on its current share price of $33.21, this implies potential downside of 3% for investors.
Big return potential
Unlike Brickworks, the broker sees significant value in Reliance Worldwide shares following a reasonably sharp pullback this year.
This morning, Macquarie has reaffirmed its outperform rating and $5.55 price target on its shares. Based on its current share price of $4.25, this suggests that upside of 30% is possible between now and this time next year.
In addition, the broker is forecasting a modest 1.6% dividend yield in FY 2026, boosting the total potential return further.
Macquarie feels that the market is undervaluing Reliance Worldwide's shares, highlighting the lower than normal multiples that they currently trade on. This is despite its belief that the company is well-positioned for the future. It explains:
We think RWC remains attractive, positioned well for tariffs and geared to any recovery (and somewhat insulated from remodelling pressures). RWC is still attractively valued, with our TP implying 12.8x EV/ EBIT vs 5-year average of 13.5x.
