Morningstar | Reliance Worldwide’s Reiterated FY19 Guidance Tracks our Forecast, but Shares Remain Overvalued
No-moat Reliance Worldwide remains on track to enjoy substantial top line growth and synergies from its recently completed acquisition of European business John Guest, and the company’s reaffirmed fiscal 2019 guidance at its annual general meeting is in line with our expectations. Nonetheless, shares continue to screen as overvalued versus our unchanged AUD 3.60 fair value estimate.Management reiterated its fiscal 2019 EBITDA guidance of AUD 280 million to AUD 290 million, originally offered following fiscal 2018 results in August, which includes AUD 10 million in synergies from John Guest. While this range falls slightly short of our AUD 294 million forecast, we continue to see the potential for greater acquisition synergies over the long run. To this point, the firm remains committed to a higher run rate of AUD 30 million by fiscal 2020, which supports our view the acquired business can expand margins to north of 40% starting in fiscal 2020 compared with our estimate in the high-30% range for fiscal 2019.
Reliance’s revenue outlook tracks our fiscal 2019 forecast. While management noted it expects high-single-digit revenue growth for John Guest this year, slightly behind our 11% projection, the company also anticipates low-double-digit organic growth from its existing businesses, ahead of our 9% to 10% range. We’re more cautious on the firm’s APAC region, where Reliance anticipates further growth, but we forecast softening as the Australian residential construction picture weakens.
Other regions are tracking in line. We expect solid, but slowing, growth in the Americas as Reliance passes the impact of its recent Holdrite acquisition and a one-time improvement from a roll-out to Lowe's stores in the fiscal 2018 second half, leading to 12% growth in fiscal 2019 compared with nearly 30% in fiscal 2018. We also forecast continued double-digit top-line growth in Europe, outside of John Guest.
Reliance Worldwide Corporation is a limited liability company. Co. is principally engaged in the design, manufacture and supply of high quality, reliable and premium branded water flow and control products and solutions for the plumbing industry. Co. manufacturers brass Push-to Connect (PTC) plumbing fittings, sold under the SharkBite brand. Co. operates through the following four product segments: Fittings and Pipe, Control Valves, Thermostatic Products and Other Products. Co. has 12 manufacturing facilities across Australia, New Zealand, the United States of America and Spain.
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