REH moat, page-83

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Barney07

12 Posts.

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23/07/17

19:28

Post #: 26030895
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Originally posted by madamswer ↑

As a continuation of the watching brief over Tradelink, I yesterday dialed into the Fletcher Building teleconference that related to its downgrade announcement to the market.

The announcement included details of a writedown of the carrying value of Tradelink.
(The monetary amount involved is $220m, although this includes a writedown of one of FBU's other businesses, so it is unclear how much of that figure s attributed solely to Tradelink.)

On the call, FBU management referred to a downward revision to Tradelink's projected profitability being the reason for the writedown.

Of course, it could be that FBU's managers are actively calling a downturn in the plumbing supplies cycle, but the muted profit outlook is far more likely to be a reflection of Tradelink's larger competitor - Reece - continuing to do what it does year after year, namely to compete harder and faster and to continue invest in its competitive capability in order to continue to drive a wedge between it and the other players in the industry.

I feel for the poor folk running Tradelink: every day you wake up and go to work in order to try to hold off the the industry juggernaut, Reece, which is unrelenting in its quest to come after your customers and your business.

Competing with Reece... one of the toughest gigs around, I'd imagine.

And FBU's balance sheet is now also very stretched, with Net Debt-to-EBITDA approaching 3.0x and Net Debt to Equity of 60%, so its not as if Tradelink's parent has any sort of war chest that it can forward to Tradelink to help it slow the onslaught from Reece.

Tradelink is up against a formidable foe, and it has to fight with one had tied behind its back.

Like I say... a very tough gig.

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Great review M. I have been a follower of Reece for a number of years - though the price has never "quite" got into my buy-range. You are spot on about their ruthless focus - I have a brother in the trade who rates them highly - particularly product\service quality. And the REH numbers tell the story - Debt\Equity coverage of just 1.6. Based on FBU HY announcements, I have Debt/EBITDA Ratio forecast to push close to 5 (my threshold is 3). Tells a story

REH Price at posting: $43.70 Sentiment: Buy Disclosure: Not Held
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0 Great analysis

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Last $25.68		Change 0.660(2.64%)		Mkt cap ! $18.39B

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REH moat, page-83

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