Reece shares dip as Goldman opens coverage with 'sell' rating
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The news: Goldman Sachs analysts have opened their coverage of ASX-listed Reece Group with a 'sell' rating, viewing the plumbing and bathrooms supplier as having "little room for outsized earnings growth".
The numbers: Goldman Sachs gave Reece a 12-month price target of $23.35. Shares were down 1.5% to $26.16 at midday AEST. However, over the last 12 months its share price has surged 39.1%.
The analysts noted that Reece's growth has slowed from 10% per year over the past 10 years to 7% over the last five years, with little room for further branch roll outs.
They have forecast a 3% three-year EBITDA compound annual growth rate (CAGR) and an 11% 20-year CAGR.
The context: Goldman Sachs said that despite having little room for outsized earnings growth within Australia and New Zealand, the US provided the group with growth optionality over the longer term. The analysts forecasted a 7% three-year EBITDA CAGR for Reece's US segment.
They also estimated that Reece has a 50% market share, with a dense store network, private label offering and service oriented model that is reflected in relatively high margins.
Last month, the Melbourne-based group announced that CEO Peter Wilson will expand his role to joint chair and CEO from 1 November as part of a raft of leadership changes.
The source: Goldman Sachs research
