Reliance’s Melbourne Exit A Positive

This story features RELIANCE WORLDWIDE CORP. LIMITED.
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The company is included in ASX200, ASX300 and ALL-ORDS

The closure of Reliance Worldwide's Melbourne brass facilities is another step to its global manufacturing rationalisation and streamlining to US on-shoring and less reliance on copper.

• Global rationalisation program sees Reliance closing down its Melbourne presence
• Company strategy is to diversify away from Australia and copper 
• Strategic changes to be earnings accretive from FY27 onwards
• Full earnings recovery dependent on more favourable US housing cycle

By Danielle Ecuyer

Responding to challenging macro headwinds

If navigating the peaks and troughs of the building materials cycle isn’t challenging enough, then shareholders and management at Reliance Worldwide ((RWC)) have had their work cut out for them in the past three years.

Like many Australian companies operating in America, the macro backdrop has made operating conditions trickier to navigate on the back of US tariffs and the interest rate cycle.

To appreciate why the market responded positively to this week’s decision to close its Australian brass casting, forging and machining operations as part of a global rationalisation program, it is pertinent to peek in the rear-view mirror.

Management’s trading update just over a year ago explained the company’s strategic re-direction to mitigate US tariffs on imports.

As articulated at the time, Reliance has a significant US manufacturing presence, but around 48% of the region’s cost of goods sold is sourced outside of the US and thus potentially subjected to tariffs.

Management’s aim was to lower the amount of tariff-impacted products from China for sale in the US to zero.

At the time, the tariffs included raw materials like copper, which formed part of the brass manufacturing process at its Melbourne facility.

As noted by Citi in July last year, the company’s major exposure to copper tariffs runs via its brass production in Australia, which relies on copper sourced from wire and recycled cable priced off the London Metal Exchange.

Citi estimated the company uses 8kt-9kt of brass annually, and a US$100/t move in copper pricing could impact earnings (EBITDA) by around -$1.1m, before any mitigation.

As highlighted by UBS, the manufacturing update reinforces the ongoing shift to the US market and to lower brass content.

Closure of the Melbourne manufacturing sites will reduce brass volumes and aligns with the shift to using more stainless steel for its plumbing product inputs.

For lack of a better analogy, Reliance has been met with a snowstorm of travails, including a slowdown in the US housing market, impacting the repairs and renovations sector, as well as higher copper prices and US tariffs.

Against this backdrop, the decline in the share price from $6 back in early September 2024, prior to the Federal Reserve cutting the cash rate by -50bps at the late September FOMC meeting, to current level around $3.715 and after posting a 52-week low at $2.86, is hardly surprising.

The retreat in share price coincided with both earnings and dividends coming under pressure.

A positive exit

Macquarie views the exit of the Australian brass manufacturing facilities as characteristic of the Reliance style following a period of adjustment for the Australian footprint, which commenced with the development of the SharkBite Max product.

US onshoring is seen as further lowering working capital intensity as well as reducing tariff exposure, while speeding up the transition to stainless steel from brass.

The closures will result in a non-cash impairment charge of some -US$100m to -US$110m, but in turn are expected to generate an annual earnings (EBITDA) uplift of around US$9m at a full run rate in FY28.

Production from the Moorabbin and Braeside facilities in Melbourne is shifting to the Reliance US manufacturing plants and to third-party sourcing in Vietnam.

The earnings uplift is supported by US$18m lower sourcing costs in the US, offset by a -US$9m earnings drag from the APAC region.

Management explained around one-third of the US$9m earnings will be achieved in FY27.

Jarden refers to the process as the ongoing manufacturing rationalisation. The relocation of SharkBite Max production to the Alabama facility has brought supply closer to the North American end markets, good for circa 68% of sales in FY25.

SharkBite Max also requires around -20% less brass per fitting versus the previous design.

In Ord Minnett’s words, Reliance now has a “leaner, lower-cost supply chain”.

Broker ratings and targets

Morgans makes no changes to its FY26 earnings forecasts ex the one-off costs related to the closure announcement.

Forecast earnings have moved slightly higher for FY27 and FY28 as benefits are realised.

Morgans sees Reliance as a quality business with a robust balance sheet and acknowledges the ongoing improvement in operational efficiencies and new product initiatives.

Against these internally manageable factors, the company remains exposed to a cyclical business model and the timing of a recovery in the US housing and repair and restorations market remains uncertain.

A Hold rating is retained with an upgraded target price of $3.60 from $3.25.

Macquarie retains an Outperform rating and raises EPS forecasts by 6.1% for FY27 and 5% for FY28 on the “optimisation” of the Americas supply chain.

This week’s announcement is considered the final “key step” in positioning US manufacturing operations in-market, or near-market. The target price is raised by around 9% to $4.90 from $4.50 due to higher earnings forecasts.

Reliance’s valuation is viewed as attractive as operating leverage is improving.

UBS retains a Neutral rating and only models a small EPS uplift. Target price $3.90.

Jarden retains an Overweight rating with a $4.10 target, up from $4.00 previously, with a 4% upgrade in EPS forecast for FY28.

This broker highlights the stock is trading around an 8.8% free cash flow yield, seen as “undemanding” for a business expected to generate double-digit EPS growth from FY27-FY30 with capital returns and organic growth.

Notably, Jarden commended management on its prior 3Q26 trading update, which confirmed FY26 guidance and placed the FY26 net tariff impact at the lower end of the guidance range.

Equally, that update aligned with management’s goal of returning 40%-60% of net profit after tax, split between dividends and buybacks. There is scope for additional capital returns in 1H27.

Based on the impact of the buybacks, EPS upgrades of circa 3%-4% over FY27 and FY28 seem plausible, assisted by net leverage at the bottom end of the target range.

Further details can be accessed in FNArena’s weekly In Brief report https://fnarena.com/index.php/2026/05/01/in-brief-reliance-bannerman-codan/

Daily monitored brokers here at FNArena have a consensus target price of $3.967, with one Buy-equivalent rating and five Neutral/Holds.

Jarden is monitored outside of daily coverage.

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