Industrials Outlook for 2018 - Tim Piper

Bell Potter

RWC manufactures rough plumbing products and is the market leader in ‘push-to-connect’ fittings. We see further market share gains in the US within the existing Repair & Renovation end market, while the launch of a new range of products (EvoPEX) will open an additional end market in new residential construction. The key risk remains any further loss of Home Depot distribution, however as the US retail distribution agreements currently stand we see both revenue and margin upside once the Lowe’s rollout is complete. We view the current FY18e guidance as conservative and forecast high-teen organic EPS growth over the medium term. RWC currently trades on a FY18e P/E of 25x, however we feel the premium is justified given the growth outlook, market leading position and likelihood of further acquisitions.

BUY, PT $4.15

Corporate Travel Management (CTD)

CTD is a leading provider of corporate travel services globally and we see continued scale benefits as the company grows market share across ANZ, North America, Europe and Asia. CTD’s focus on customer service, innovative online tools, and returns on investment for clients sees the company continue to win market share globally and as more booking activity shifts online we expect higher EBITDA margins across the group. We see the USA and Europe as key growth regions over the medium term and we expect further EPS accretive acquisitions in both of these regions. While a FY18e P/E of 25x is a premium to the sector we feel it is well justified and on a forward P/E basis CTD is currently at its cheapest level in almost 2 years.

BUY, PT $24.20

Johns Lyng Group (JLG)

JLG listed in October 2017 and is an Insurance and Commercial building company with a core focus on repair and restoration work following an insured event such as storms, flooding, cyclones, fire and more. We like the corporate structure of the group which is made up of 48 individual business units where the operator/s of that unit is incentivised through both equity ownership in the business unit and at the JLG group level. There is significant opportunity for JLG to increase the volume of work allocated from insurance brokers, grow panel representation, further expand the geographic presence, and to expand the product offering into adjacent areas. Any catastrophic weather events provide significant earnings upside to what is a largely non-cyclical underlying business, and we view the prospectus forecasts as conservative.

BUY, PT$1.40


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