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Reliance Worldwide (RWC) | Expect a long slog ahead


Reliance Worldwide (RWC)

Expect a long slog ahead


James Casey
+ 613 9602 9265ustralian




Rating HOLD
Risk Medium
Price Target $2.75
Share price $2.71

In a nutshell: Reliance Worldwide’s (RWC) trading update in May 2020 revealed its UK and European operations had experienced an extremely difficult trading period in April, with activity levels down 60-65%. While the UK market has experienced gradual improvement since, recent evidence from competitors and distributors reveal sales revenue remains well below the pcp. Industry forecasts suggest demand for the remainder of 2020 and 2021 will remain below 2019 levels. Whilst the UK government has introduced further stimulus in the housing sector, it will take time for this to take effect.

UK construction market remains difficult: In its trading update in May 2020, RWC revealed its UK and European operations had experienced difficult trading conditions, with activity levels running at 35-40% of pre-COVID-19 levels. The UK has been the hardest hit, with key UK channel partners operating on restricted services.

Anecdotal evidence suggests 2H20 revenue down 20-25%: Polypipe Group plc (PLP), the largest UK manufacturer of plastic piping systems, provided a recent trading update. The company reported revenue for the six months to June 2020 was down 24% on the pcp and management was cautious on whether “recent improvement” would be sustained. Similarly, Grafton Group plc, the UK building materials distributor, reported group revenue for the six months to 30 June 2020 was down 19.4%

Outlook remains tough: In terms of outlook, economic and industry forecasts show a significant impact from the COVID-19 outbreak on the UK construction industry. Recent forecasts from the Construction Products Association (CPA) show residential new build demand in 2021 is likely to be 20% lower than 2019 levels, while Housing RMI spend is expected to be 15% lower than 2019 levels.

Overall: The weakness in the UK construction market presents a risk to our current forecasts for RWC. RWC’s UK revenue is two-thirds driven by repair and maintenance work, which in normal circumstances should be less cyclical than exposure to new housing. However, industry forecasts suggest this may not be the case. As the CPA put it in its recent outlook, “expect a long slog ahead”. Our HOLD rating and $2.75 price target remain unchanged. Click here to read full report



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