Reece Australia: Result 2012
Recommendation
While its competitors and suppliers are suffering, plumbing and bathroom supplies company Reece Australia has managed to contain the damage from Australian residential building consents falling 12% during the 2012 financial year.
Reece’s revenues fell 3% to $1,529m, while net profit fell 5% to $113m. An unchanged fully franked final dividend of 40 cents was declared (ex date 2 Oct), making 61 cents for the year.
This remains a very high quality company, with negligible debt, net cash of $158m on the balance sheet, a property portfolio valued at $279m and franking credits of $322m. Disclosure is generally poor, however; same-store sales growth, for example, simply isn’t provided. You’re relying on management’s excellent long-term record rather than shareholder-friendly disclosure here.
Full year to 30 June | 2012 | 2011 | Change (%) |
---|---|---|---|
Revenues ($m) | 1,528.8 | 1,570.3 | -3 |
Net profit ($m) | 113.3 | 118.6 | -5 |
EPS (c) | 113.8 | 119.1 | -4 |
DPS* (c) | 61.0 | 61.0 | N/A |
Franking (%) | 100 | 100 | |
* Final dividend 40 cents |
On an EV/EBIT multiple of 11 times, the stock does not look particularly expensive given the company’s impressive long-term performance. But the threat from Woolworths’ Masters—which offers keen pricing on higher-end bathroom products—should be borne in mind. Reece also looks fairly mature, so there’s a good argument for increasing the dividend payout ratio and, perhaps, cutting back on capital expenditure.
Another year of difficult industry conditions could provide an opportunity to buy Reece. Our recommendation guide prices remain unchanged and, with the share price up slightly since 27 Feb 12 (Hold – $18.50), the stock remains a HOLD.