On the face of it, plumbing and heating supplies company Reliance Worldwide Corporation Ltd (ASX: RWC) appears to have some challenges.
The company's board of directors managed to survive a spill resolution this week, after the company notched up a second consecutive strike vote against its remuneration report.
And the managing director, Heath Sharp's, address to this week's annual general meeting wasn't particularly rosy on the outlook either.
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Difficult times ahead
Mr Sharp said, as the company advised while releasing its full-year results in August, that the economic times were challenging for the company. And this had not changed, he said.
The guidance provided at that time in unchanged. For the first half of FY26 we are not anticipating any improvement in activity levels in any of our key markets. As such, we expect consolidated group sales for the first half to be broadly flat to down by low single digit percentage points.
In the America market, the outlook was for low single-digit falls in sales revenue, while in the Asia Pacific and Europe, sales were expected to be "broadly flat".
Mr Sharp said the company also expected its margins to be eroded by tariffs, although he added there were moves afoot to ameliorate this.
The tariff mitigation initiatives we have underway are phased progressively throughout FY26, as we move product sourcing out of China and implement price increases. We therefore expect to see a disproportionate impact from tariffs on operating earnings and margins in the Americas in the first half of FY26.
Shares still look cheap
But despite this admittedly gloomy update, the team at Macquarie have an outperform rating on Reliance shares.
As they wrote in a note to clients this week:
Fundamentally, the business is in good shape – tariff mitigation is on track, a growth orientation is in focus and the organisation is M&A ready. Our overall take-away from the investor day is that the business is in good shape, well positioned and systemically enabled to take hold of volume improvement, with channel and supplier relationships that underpin this. Management cohesion is strong too.
The Macquarie analysts said the company was ready for acquisitions, "with all Reliance's regions seeking bolt-on, typically family-owned operations that extend product positions or channel representation".
Macquarie has an unchanged price target of $5.30 per share on Reliance, compared with the $3.97 closing share price on Thursday.
And once dividends are factored in, they say the stock could return a total of 34.7% over the next 12 months.
