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REH - Reece Limited

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REH released their AR late yesterday afternoon, I didnt think it was all that good to say the least, revenue up 100% but a slight drop in earnings. Seems like borrowing and capital raising $1b to buy Moresco has generated barely any return on capital! Shareholder returns look even worse via the dilution as eps drops over 20%.

The market has not marked REH down for the result, so it must be confident the payoff will eventuate!

 
Recent BO above resistance was met with supply (closed near low). The chart is looking bullish but demand has to overpower supply (or supply is withdrawn) before any price rise can happen.

 
Reece REH has launched a 3-for-55 entitlement offer to raise $232 million, and a fully underwritten $368 million placement. Under the $600 million raising priced at $7.60 per new share, the Wilson family will subscribe for $170 million in shares, but will reduce its holding from 73 per cent to 68 per cent.

The capital raising is at a 12.5 per cent discount to the last traded price of $8.69 on April 3.

CEO Peter Wilson said plumbing is classified as an essential industry and both the MORSCO business in the United States, which Reece acquired for $1.9 billion in 2018, and the 630 Reece outlets in Australia, are open for business; and that both had moved very quickly a few weeks ago in putting in place strict social distancing policies for the stores.

"What we're saying to shareholders is now is the right time to fortify the business,'' he said.

- smart operators. Getting in ahead.
 
I hold, should have sold when they announced the Morsco acquisition and resultant debt. I wont participate in the CR, even if I wanted to buy more I reckon the discount will be bigger in the near to medium future.
 
A better result this year, some benefits from the Morsco acquisition flowing to the bottom line. The huge debt is still a worry, 100 years in business is pretty special in Australian corporate history. I feel a little more conviction in this holding now!
 
and another benefiting on inclusion, to the S&P/ASX 200 Index – effective 21 Dec 2020

at an alltime high today (has been a Covid beneficiary)


The October update saw something of a retrace, then onward and upward by late Nov/Dec:
Reece achieved sales revenue of A$1,565m for the first quarter, up 4.4% on the same period last year. In ANZ, sales revenue increased 6.9%. In the US, sales revenue grew 8.6% on a USD basis.
The Group does not see the first quarter’s performance as illustrative of the remainder of the financial year, given significant uncertainty and negative economic indicators across Australia, New Zealand and the US. Given the uncertain outlook, the Group won’t be providing any forecast for FY21.
Peter Wilson, Group CEO and Managing Director of the Reece Group said, For
 
$77 in the pre split money, I paid $45 in 2016 & nervously wondered if I wasn't overpaying, even though I believed it was a great business.
 
The Reh shareprice has had a stellar 12 months, but was clipped on the FY result

Financial highlights:
  • Sales revenue up 4% to $6,271m
  • Normalised EBITDA up 11% to $720m
  • EBIT up 20% to $493m
  • NPAT up 25% to $286m
  • EPS up 10% to 44 cents
  • Final dividend up 100% to 12 cents per share, fully franked

 
A mid afternoon FY22 Q1 update contained no surprises. The market liked it zoom zoom.

 
Very hard to predict what the market reaction is going to be at the moment! Compare this to CDA, both had positive outlooks while tempering the outlook due to the uncertainty of a post Covid world. Anyway, swings & roundabouts, overall the market just keeps marching upwards, a rising tide lifting most boats...for now.
 
H1 2022 results were good for REH, FCF went negative like many other businesses this year, increased inventory the main reason. Significant progress made on reducing debt, down about $300m.

 


The gap-up created on Oct 29, 2021 has now been filled and it appears as though the downtrend from early January of this year may be showing signs of a reversal, although early days as yet.
Cheers Rob
 
Am I the only one who has been perplexed by the consistent price drop on the plumbing companies REH, RWC?

I've looked for a seasonal pattern but found nothing.

I've got them both on the reversal watchlist but they've been there for quite a while.
 
I'd say its due to supply chain issues - plumbing fixtures are really difficult to get for construction/development and its costing a lot more to get what you need. REH has pretty slim margins already so that would be the concern in the market.
 
Will be interesting to see what pricing power they have.
 
As already noted by galumay H1 FY22 results were pretty good with +17% rise in revenue and +28% rise in EPS.

Surprising to me was that they talked back then of a "positive demand environment", "our customers busier than ever .. with construction activity solid in the near term". Nonetheless I reckon you'd have to be a fan of the company to pay the present price; fwiw I figure it as worth a bit over 2 x BV which would put it at ~$10 with no discount for safety, I guess there's something in others' valuation for growth prospects - not for me in these ominous times.

Chart's the only reason I am posting as it is at touch and go just below $15. Maybe buyers will tack on even more premium in anticipation of H2 results but since I get no prize for sticking my neck out I won't pick whether it will break through or crumble. I don't know. The daily chart does look a decent prospect for reversal though.

Not Held

Daily
 
  • REH has reported a 20 per cent rise in half year net profit to $224 million
  • Revenue increased 2.5 per cent for the six-month period to $4.5 billion.
  • declared an interim dividend of 8¢ per share.
Chief executive Peter Wilson said he expected “subdued demand” in the second half with a “softening in the environment in ANZ”.

“We take a long-term view and will continue to invest to build a stronger business and deliver on our 2030 vision of being our trade’s most valuable partner,” he said
 
Great to see they published adjusted NPAT for PRP, showing profit growth was actually only 6.5%.

A soft result overall, and that has probably played its part in REH not paying much of the debt down this half.
 
Market Matters Match Out

Reece (REH) -3.91% fell after reporting FY24 profit slightly below estimates and flagged a challenging outlook, particularly in Australia, which is a common theme for building companies so far this reporting period

Not Held
 
Yeah, I was surprised it fell so much, no matter, I am sure it will continue to grow and generate decent returns. Been a long term hold for me for about 8 years. I think it was one of the first businesses I convinced my self to pay what seemed like a high price, but the quality was obvious.
 
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