Reece Limited: A Quality Plumbing Distribution Play at an Attractive Valuation

Reece Limited (ASX: REH) is Australia's leading plumbing and bathroom supplies distributor, with a dominant 50% market share across Australia and New Zealand. Founded by Harold Joseph Reece in 1920, the company has built a strong reputation in the essential plumbing industry while expanding its footprint into the much larger U.S. market.

Why we like Reece Limited

• Market-leading position with steady demand - Reece’s strong market position in Australia and New Zealand gives it a significant advantage. It benefits from established supplier relationships and economies of scale. Importantly, plumbing is a steady business, as people still need repairs and maintenance even when the economy slows down. This helps keep earnings more stable over time.

• Compelling U.S. expansion opportunity - The company's strategic expansion into the larger and more fragmented U.S. plumbing market presents substantial long-term growth potential. Reece could replicate its successful business model and capture market share through both organic growth and strategic acquisitions.

• Financial strength and family ownership - Reece has a strong balance sheet, which supports its growth plans. The founder’s family still owns a large part of the company, ensuring management interests remain aligned with shareholders. This founder-led approach has historically driven disciplined capital allocation and strategic decision-making.

• Long-term housing demand - Ongoing demand for housing—whether it’s new homes, renovations, or maintenance—supports Reece’s business in both Australia and the U.S. As long as people need plumbing, Reece is well-placed to supply it.

An Opportunity in Current Valuations

Reece’s share price has come down from high levels, with its price-to-earnings ratio falling from over 40x to around 25x. This means investors today are paying a more reasonable price for a high-quality business. With interest rate cuts possibly on the horizon and housing markets showing signs of improvement, Reece could be well-positioned for future growth.