Company Reports

Our AUD 13.50 fair value estimate for no-moat Reece stands on the latest leadership transition update, with shares screening as significantly overvalued. As previously announced, CEO Peter Wilson will take on the additional role of chair following Tim Poole's retirement in November 2024. Reece has announced that Sasha Nikolic, currently CEO of Reece’s US business, will step up into the role of group president and managing director. Nikolic will assume responsibility for strategy implementation and performance, with input from Peter Wilson.

Reece operates two distinctly different business segments: Australia and New Zealand, or ANZ, and United States, or US

Reece operates two distinctly different business segments: Australia and New Zealand, or ANZ, and United States, or U.S.

No-moat Reece’s half-year results were slightly ahead of our forecasts, with underlying EBITDA of AUD 526 million and underlying net profit after tax of AUD 224 million, growing at 8% and 6%, respectively, compared with the prior corresponding period thanks to improved operating margins. However, we forecast a weaker second half, with management expecting demand to soften across Australia and New Zealand, and the United States and margins to face pressure from higher wages.

We initiate research coverage of Reece, with a fair value estimate of AUD 13.20 per share and a no-moat rating. Shares currently trade at about a 50% premium to fair value, on a P/E ratio of 36 times, and offer a dividend yield of 1%, fully franked. We apply a weighted average cost of capital of 8.4% to our estimates of free cash flow to the firm.

Reece operates two distinctly different business segments: Australia and New Zealand, or ANZ, and United States, or U.S.