Reliance: Rate Cuts Key to Volume Recovery

Narrow-moat Reliance is well-positioned to benefit from improved housing sentiment in North America, where 70% of its earnings are exposed. Improving sentiment largely owes to expectations of lower mortgage rates. In October 2024, approximately 40% of respondents stated they expect mortgage rates to decline, per the Fannie May Home Purchase Sentiment Index. We forecast the average US home loan 30-year fixed rate will decline to 5.90% in 2025 and 4.75% by 2027, down from an average of 6.80% over the last two years. This underpins our expectation of increased construction and repair and renovation activity, and demand for Reliance’s plumbing and heating products. Both segments have seen weaker volumes over fiscal 2024 and the first half of fiscal 2025.