Reece (REH) – Navigating the cyclical downturn

Reece is a manufacturer and supplier of plumbing products across trade, retail and commercial markets in Australia, New Zealand, and the US. Reece was founded in 1919 and is based in Cremorne in Melbourne.

Reece's FY25 operating earnings fell 20%, hurt by soft housing markets in Australasia and the US. Declining sales and an escalating cost of doing business (CODB) has seen significant operating deleverage in both key markets. Return on invested capital has declined to a cyclical low of 7.3%. We expect the company to return to growth as end-market demand eventually improves from cyclical lows. Reece commented that trading conditions in the early part of FY26 remain consistent with 2H25, with operating earnings down on a year ago.

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Despite improved lead indicators in Australasia, Reece expects a slow housing market recovery in that market. In the US, improved housing markets will require significantly lower interest rates to drive activity. With improvement in end markets yet to materialise, we downgrade FY26/FY27 earnings by 16% and 19%. Overall, the near-term outlook for Reece remains challenging. Despite this Reece continues to invest through the cycle to pursue its growth ambitions. We maintain our BUY recommendation and expect earnings and returns to improve from a cyclical low.

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