Morningstar | 1Q Sales in Line for Narrow-Moat GWA Group; FVE Unchanged
First-quarter fiscal 2019 results for narrow-moat GWA Group were broadly in line with our expectations. Revenues rose 2% in the first quarter, marginally ahead of our expectations for growth of about 1% for the full year. Operating margins remained steady, also in line with our expectations for a full-year fiscal 2019 EBIT margin of roughly 21%, similar to fiscal 2018’s result. We maintain our fair value estimate of AUD 2.80 per share. GWA’s shares currently trade at a slight 7% discount to our valuation.GWA reported first quarter sales momentum in its largest markets of New South Wales and Victoria, while slower conditions in Queensland, Western Australia, and New Zealand provided a partial offset. Looking forward, GWA expects sales growth to remain resilient through fiscal 2019. We expect a slight slowing as the year progresses, with the group’s approximate 50% exposure to the less cyclical repair and remodel, or R&R, market and price increases starting from September 2018 providing an offset to the cyclical peak in Australian residential construction activity in fiscal 2018.
We expect sales volumes from residential dwelling construction to recede 2.6% in fiscal 2019, while R&R volumes will likely remain robust at approximately 4%. Taken together, we continue to forecast full-year revenue of AUD 362 million in fiscal 2019, a 0.7% increase over the prior year. With operating margins expected to remain intact, we forecast operating income of roughly AUD 74 million and earnings per share of AUD 18 cents. As such, the stock now trades at a reasonable 14.6 times price/earnings ratio.
GWA Group is engaged in the research, design, manufacture, import and marketing of building fixtures and fittings to residential and commercial premises and the distribution of these various products through a range of distribution channels in Australia, New Zealand and selected international markets. Co.'s business segments are: Bathrooms and Kitchens, which includes vitreous china toilet suites, basins, plastic cisterns, tapware, baths, kitchen sinks, laundry tubs, and bathroom accessories; and Door and Access Systems, which includes door locks and levers and supply and maintenance of commercial door systems.
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