REH moat, page-155

"look- i told holders that this would be on the cards ages ago, but did anyone listen?
most REH holders live under a rock, and i am only trying to help them!
WES is a lot smarter than REH in regard to hardware. could you imagine a bunch of innocuous lightweights trying to manage Bunnings?
sure, Homebase was a bit of a downer, but could you imagine a company like Reece trying to make it in Pommy land?
what i suggest is that REH holders try and repair their leaky faucets of 'denial'."


Yeah, I remember people like yourself saying the exact same thing when Fletcher Building acquired Tradelink 8 years ago; a plethora of the same sort of unsubstantiated gloom and doom claptrap, like:

"A new owner means that Tradelink's days of under-performance are over",

"Fletcher Building has the necessary balance sheet to upgrade and overhaul Tradelink",

"Reece's major competitor is going to be reinvigorated in an almighty way",

"Reece's days of having it so easy are over",

"Quick! Sell your Reece shares, Adam. Tradelink are going to steal Reece's profits."


Let's have a look at what transpired:

Operating Profit in FY2010:
Tradelink: $41m
Reece: $164m

Operating Profit in FY2017:
Tradelink: $5m
Reece: $309m

(No, those aren't typographical errors: Reece's EBIT is today well in excess of $300m, having essentially doubled over the past 8 years [*], while Tradelink's EBIT today is around $5m, having fallen by almost 90% over that same period.)

In FY2010, Reece's EBIT was 4 times that of Tradelink; today it is a factor of more than 62 times higher.

That sequence of events would be quite funny, if it wasn't for the elevated levels of job insecurity that Tradelink's employee base must constantly be experienced.


[*] Needless to say, when a company more than doubles its operating EBIT in any 8 year period, without recourse to the owners of such a company for a single dollar to fund that growth, the share price of such a company will respond accordingly.

In Reece's case, the share price went from an average price of $4.50 in 2010, to today's near-record price of $10.68.

Nuff sedd, I think.