Reece Ltd (REH: ASX)

Last update - 23 August 2023 By James Woods

Reece, a current holding within the ASX Growth portfolio and a market leader in the plumbing and bathroom supplies sector, announced impressive full-year earnings for 2023.

Reporting a net income of A$387.6 million, narrowly contracting by 1.2% year-over-year (y/y). This figure comfortably met the consensus estimates of A$386 million. Additionally, REH announced a substantial growth in sales revenue, which surged 15% y/y, landing at a notable A$8.84 billion for the year, ahead of estimates of $8.571 billion.

The company’s financials showcase the strength of its operational efficiency. Reece’s normalized EBITDA stood at A$974.6 million, up 16% y/y, keeping in line with the firm’s EBITDA margin of 11%. Moreover, when broken down regionally, Reece’s operations in Australia and New Zealand (ANZ) yielded a normalized EBITDA margin of 14.9%, slightly contracting from the previous year, while its US operations saw a growth in the same metric, from 7.5% to 8.1% y/y. A fully franked final dividend of $0.17 was announced, ahead of forecasts of $0.145. This announcement takes the total dividends for FY23 to $0.25 per share, up from the previous year’s $0.225.

Despite earnings, revenue, and dividend modestly above expectations, shares are -1.12% lower this morning compared to the ASX200 which is 0.55% higher, likely to do with profit-taking following strong year-to-date gains rather than anything concerning in the report.

While the global economic environment is softening amid a rapid rise in interest rates, the firm managed a commendable 16% growth in sales revenue. In the regional spotlight, the ANZ operations witnessed a 10% rise in sales revenue, amounting to A$3,853 million. The US operations, however, saw a more pronounced growth, with sales revenue spiking by 21% to A$4,987 million. Notably, the company continued its aggressive expansion strategy in the US, with the acquisition of a Texas-based air conditioning wholesaler and opening 27 new branches.

Reece’s 2023 performance underscores its commitment to maintaining operational excellence amidst economic uncertainties. Its discipline, coupled with a long-term vision, positions the firm well for sustainable growth giving shareholders optimism for the future. REH’s inclusion in the value component of the ASX Growth portfolio is based on financial metrics such as profitability and valuation, and the stock remains an active buy/hold recommendation and has returned a total of 4.3% since it was added to the portfolio including today’s movement. The ASX Growth portfolio will next be rebalanced on September 15th.

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