GWA Limited (ASX: GWA): Strengthening Plumbing Solutions for Future Growth

About GWA Limited

GWA Limited (GWA, the Group, ASX: GWA) listed on the ASX in May 1993 and is an ASX300 company. GWA’s target market is tie plumbing and construction industry. The Group designs, imports, and supplies products that are focused on water solutions for bathrooms, kitchens and laundries. Brands owned by the Group include Caroma, Dorf, Clark, and Methven. The Group distributes its products across primary end markets in Australia, New Zealand and the United Kingdom.

Plumbers are a core element of GWA’s growth strategy

Plumbers represent the single largest opportunity for GWA to grow volume and market share in Australia and New Zealand and so this target market is a core element of GWA’s growth strategy. This should be no surprise given the most recent Australian Bureau of Statistics data shows that there are 11,252,600 residential dwellings in Australia as of 30 September 2024. A well-maintained plumbing system is essential to a residential dwelling for a healthy living environment by providing clean water and removing wastewater.

This explains why GWA’s growth platform for FY25 and through to 2027 centres around its “Win the Plumber” strategy that now reaches 25,000 plumbers who are signed up and categorised between new build and maintenance plumbers. The strategy includes 18,000 plumbers to whom technical services are provided through ongoing technical interactions. In positioning itself as the plumbers’ trusted technical partner, GWA has 2,500 plumbers specifically trained in the use of its innovative plumbing products and plumbing solutions.

This strategy is achieving positive results with “Plumber Bundled” sales up 8 percent in FY24, when Group revenue was up just 0.4 percent.

Strengthening financial position

Most of GWA’s market segments are facing headwinds, particularly New Zealand, which is in recession, while the Australian economy grew by just 0.3 percent in the September quarter and only 0.8 percent over the year. In response to these tough market conditions, GWA maintains a conservatively structured balance sheet that provides it with the capacity to work through tough economic times without the need to meet the demands of its bankers.

Currently, GWA’s net debt is the lowest in 5 years with net debt at 30 June 2024 of $97 million, down from $144 million at 30 June 2020. Gearing, as measured by net debt to net debt plus equity is 20 percent and GWA’s leverage ratio at 30 June 2024, as measured by net debt to EBITDA, was 1.2 times.

The Group’s cash conversion ratio is running at an impressive 110 percent of normalised EBITDA. This tight working capital management combined with a moderate gearing ratio enabled GWA’s 87 percent normalised dividend payout ratio in FY24.

Targeted focus in FY25

In response to challenging market conditions GWA is targeting specific market segments. These segments include commercial aged and healthcare, volume home builders, social and affordable housing / build to rent projects and maintenance plumbers and commercial office refurbishment.

GWA recognises the changing dynamic in Residential solutions to multi-residential and affordable living, while the Group’s focus on aged and healthcare includes hospitals and complete care solutions. Complementing this targeted focus is the Group’s strategy to position itself as “The Plumbers trusted technical partner.”

Group outlook FY25

Most of GWA’s market segments are facing headwinds.

The Repair and Renovation segment which accounts for 56 percent of GWA’s Australian revenue is expected to decline from historically elevated levels. Commercial work and new office build is also expected to decline, although offset by a positive outlook for health and aged care projects and office refurbishments. Commercial work accounts for about 21 percent of Australian revenue.

The New Zealand economy is expected to remain challenging in FY25 and a modest market recovery expected for the UK in FY25 across new build and repair and renovation segments.

The Australia market outlook remains mixed for most segments, although continuing solid demand in health and aged care markets is anticipated.

The GWA Board have expressed confidence that the Group’s strong balance sheet with debt at 5-year lows together with the “Win the Plumber” strategy is the appropriate response to the current subdued market conditions.