US tariffs may favour Reliance

President Donald Trump’s increasing tariffs in the US could work as a “competitive advantage” for supplies business Reliance Worldwide.

Reliance Worldwide chief executive Heath Sharp. Picture: Jeremy Piper

President Donald Trump’s increasing tariffs in the US could work as a “competitive advantage” for supplies business Reliance Worldwide, which says its underlying business is strong despite worries about economic conditions in several markets and the looming Brexit in Britain.

Reliance chief executive Heath Sharp told analysts yesterday that the tariffs could work in the company’s favour in the US, where it sells its SharkBite push-to-connect plumbing fittings used by tradies in bathrooms, kitchens and laundries.

When asked what effect rising tariffs could have on Reliance, Mr Sharp said: “Frankly, we have no idea what tariffs we will face next week … let alone by the end of the year.

“(But) we think it will actually be a competitive advantage given a high proportion of our products are made in our own factories … whereas the majority of our competitors are procuring finished goods from China.”

Reliance announced it had more than doubled net profit to a record $133 million in 2019 despite headwinds such as higher copper prices and a slowdown in new Australian housing construction.

Revenue for the 2019 financial year increased 43.5 per cent to $1.104 billion, including the first full-year contribution from its $1.22bn acquisition of British plastic fittings maker John Guest in May last year.

Reliance raised its fully franked final dividend by 2c to 5c.

Mr Sharp told The Australian that he didn’t think the Australian residential sector had “bottomed out quite yet” and that the business had been stockpiling product in Britain before any supply issues caused by Brexit later this year.

He also said that Reliance had the capability to manufacture more of its products in the US and Britain and could also move with its existing suppliers in China to nearby countries such as Vietnam and Indonesia to lessen the impact of tariffs.

The result pushed the Reliance share price up more than 6 per cent in early trading. It later closed up 5.8 per cent, at $3.49. Reliance shares had slumped as much as 26 per cent in May after the company had lowered its full-year earnings guidance, blaming events such as the lack of a big freeze in the US that would usually see Reliance benefiting from the repairing of cracked and broken pipes.

Mr Sharp described 2019 as a “momentous year” and claimed Reliance now derived about 70 per cent of its income from plumbers and tradespeople undertaking repairs and maintenance, making the company a “defensive” stock in nature.

He forecast a net profit after tax of between $150 million to $165 million in the current financial year, though the number could be impacted by Brexit and other factors.

“(With Brexit) the key word is uncertainty and it has been a bit hard to read the marketplace,” he said.

“The last couple of months of 2019 were soft and the first bit of 2020 has been the same. It has been a mid to high single-digit growth business, but if the market softens we are not going to see the same number in the UK market this year.”