• Oct 30, 2018 AEDT
  • Team Kalkine

The board continues to be pleased with the acquisition of John Guest and efforts are made to integrate the two businesses. The company is working closely with the people of John Guest to understand their business as the management finds additional growth opportunities in it. John Guest has a strong position in the UK and continental Europe and RELIANCE WORLDWIDE CORPORATION LIMITED (ASX: RWC) in North America and Asia Pacific which may help in aligning the growth strategy. After the acquisition of John Guest, RWC has now become the global leader in the manufacture and distribution of both brass and plastic PTC technology and related products. RWC remains consistent with its core business whereas John Guest tries to provide its customer with quality, disruptive product in order to reduce the labour cost and make its contractor job easier. 

The Board was happy with the FY18 results. It assures that it will continue the track record of the business with respect to deliver strong sales and earnings growth. Heath acknowledges the management team and the global workforce with the strength of 2300 people for their continuous efforts helped in the delivery of operating and financial outcome. For the FY2019, the company has provided its EBITDA guidance report of $280 million to $290 million. The company was able to raise $1.1 billion by offering 1 for 1.98 pro rata entitlement offer in June 2018. Proceeds were used in order to fund the acquisition and associated transaction costs of John Guest.  The company reported that they paid fully franked dividends worth $42.1 million for the FY2018 which represents a payout ratio of 63.8% of net profit after tax. For the FY2019, the targeted payout range for remains 40% to 60% of net profit after tax, considering various relevant factors.

The company shows a strong balance sheet and it is continuously supporting the business growth. Apart from undertaking the pro rata Entitlement Offer, the company has entered into a syndicate loan worth $750 million. Out of which $400 million will be used to expand available facilities and extended maturity periods to between 3 and 5 years. The company will use a part of money to fund John Guest acquisition. Reliance is a company having low gearing ratio followed by high cash generating capacity. On a net debt basis, approximately $300 million is available to be drawn under the facility as of today. Net free cash generation will continue to be used towards reducing borrowings. The company delivered a strong annual growth in FY18 where there was a growth in net sales by 28% as compared to FY17. The EBITDA for FY18 was $150 million before any contribution from John Guest. The net profit after tax increased by 20% as compared to FY17 excluding any contribution from John Guest. This increase in net profit after tax is equivalent to $78.6 million. The company is looking forward to delivering EBITDA between $280 million and $290 million as per the financial guidance report FY2019. The company remain confident that acquisition of John Guest will lead to the annual synergy realization go up by $30 million on the basis of run rate by the end of FY2020.

The current market price of the share is A$4.705 with market capitalization of A$3.66 billion and PE ratio of 37.64x.


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