It isn’t uncommon to find ASX companies that enjoy strong advantages locally but don’t have the same level of clout in other countries.

ARB’s high-end vehicle accessories struggle to fetch the same premium pricing outside of Australia. Reece’s Aussie trade supply stores benefit from scale benefits but are on the wrong end of this dynamic in the US. And then you have the big four banks’ attempts to grow abroad.

Reliance Worldwide (ASX: RWC) experiences something of the opposite phenomenon.

An undisputed category winner

Reliance Worldwide sells plumbing components. Yet despite being Australian owned, its SharkBite and John Guest brands of push-to-connect pipe fittings carry far more weight in the US and UK than they do in Australia.

In the US, SharkBite enjoys 85% market share and is synonymous with the push-to-connect category in the way that Jacuzzi is for spa baths and Tupperware is for plastic food containers.

It is the only product of its kind to be stocked by both major US home retailers, Home Depot and Lowe’s. Reliance also has been able to extract higher prices from those buyers, a rare feat as both companies have huge buying power.

In Australia, things are different. SharkBite has closer to 20% market share of the push-to-connect category and no real traces of pricing power.

Building on SharkBite’s success

Reliance’s 2024 results showed revenues of USD 1.2 billion (flat on last year) and adjusted profits that were around 3% lower. Were it not for the Americas segment, which saw its profit margins rise by around 17%, things would have been a lot worse.

Morningstar’s Reliance Worldwide analyst Esther Holloway says the group continued to position its Americas segment for growth during the year. And while the Americas already deliver around 70% of Reliance’s overall sales, she thinks the prospects for this market look pretty good.

One reason for this is that the adoption of push-to-connect plumbing fittings looks set to accelerate. Holloway sees this being driven by the US’s younger and less experienced plumbing workforce, as well as an increase in DIY plumbing informed by blogs and how-to videos.

Thanks to these trends, Holloway thinks push-to-connect products can increase their share of the US plumbing fittings category from 15% to 25% over the coming decade – a development that could clearly benefit SharkBite and Reliance’s other push-to-connect brands.

Reliance’s products are trusted due to their significant time in the market without any major at-fault issues. And as the cost to the consumer of a water leakage could be huge, Holloway thinks most consumers are willing to pay Reliance’s slightly higher prices over newer or less recognisable brands.

Reliance is also trying to leverage the brand awareness and buyer relationships it has gained from SharkBite into complementary product sales. These new products have mostly been acquired through bolt-on acquisitions and include Holman (bought in 2024), EZFlo (2021), John Guest (2018), and HoldRite (2017).

How much might Reliance be worth?

Overall, Holloway thinks that Reliance can grow its revenues at an average rate of 7% for the next decade.

The company’s profit margins can be expected to fluctuate due to the cyclical nature of demand for home renovation and construction products. But Holloway thinks that underlying margins can improve from a current level of around 22% to a midcycle pre-tax level of 25%.

All in all, Holloway thinks that Reliance is worth $5.90 a share. At a current price of $5.10 the shares look undervalued and command a four-star Morningstar rating.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn more about how to identify companies with an economic moat, read this article by Mark LaMonica.