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Why the Reliance (ASX:RWC) share price hit a 52-week high

The plumbing supply business was breaking records on Friday as construction booms across the country.
The post Why the Reliance (ASX:RWC) share price hit a 52-week high appeared first on The Motley Fool Australia. –

The Reliance Worldwide Corporation Ltd (ASX: RWC) share price had an absolute blinder on Friday. Shares in the plumbing product manufacturer hit $5.46 before slightly retreating to close at $5.40. That was still up an impressive 4.05%. By comparison, the S&P/ASX 200 Index (ASX: XJO) finished the day 0.49% higher.

While there have not been any major market announcements out of the company since late April, there have been several external factors at play that may have been impacting Reliance shares.

Let’s take a look at some of these.

Why the construction industry is booming

Booming property market

As any first home buyer can tell you, the property market in Australia’s capital cities is surging. A recent article published by Domain Holdings Australia Ltd (ASX: DHG) claimed the price of housing in the nation could rise at 10x the rate of wages in 2021! Through a combination of record-low interest rates and high economic growth, the Australian property market has been fuelled to feverish levels.

One reason investors may have been becoming increasingly attracted to Reliance shares could be because they believe the company stands to benefit from the housing boom – as lots of activity in the property market could translate into a surge in property renovations and repairs.

In fact, on Friday the Australian Bureau of Statistics (ABS) confirmed new loan commitments for owner-occupied homes were up 4.3% in April to a record $23 billion. Investor loans increased 2.1% to $8.1 billion – a level not seen since mid-2017. By state, the biggest rises in new loan commitments were in New South Wales and Victoria – up 8.6% and 8.4% respectively. Sydney and Melbourne in particular have seen housing prices soar in recent months.

Construction industry coming up tops

As reported by Thursday’s Australian Financial Review (AFR), the construction industry is also experiencing a highly robust period at the moment. The selling prices of construction services are at their highest on record, and so are input prices and the pace of employment in the industry.

Judging by the new 52-week high for Reliance shares, it seems investors may believe suppliers like it stand to materially benefit from this record-setting period for the industry.

However, the AFR article did also report on fears this ‘era of good-feelings’ could be followed by a sharp bust period.

HomeBuilder second chance

While the federal government’s HomeBuilder program has wrapped up, 9News reported at the start of this month “thousands” of applicants who missed out due to a technical issue with their application will get a second chance to access the scheme that provided grants of up to $25,000 for the construction or renovation of a home.

Shane Oliver, senior economist at AMP Capital, said in April HomeBuilder was likely one reason why the housing industry not only survived but thrived during the pandemic.

This temporary extension of the construction stimulus could also possibly be exciting Reliance investors.

Reliance share price snapshot

Over the past 12 months, the Reliance share price has increased by around 66%. In March, the company paid a dividend of 6 cents per share – its largest in at least 4 years.

Based on the current share price, Reliance has a market capitalisation of around $4.27 billion.

The post Why the Reliance (ASX:RWC) share price hit a 52-week high appeared first on The Motley Fool Australia.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Reliance Worldwide Corporation Limited. The Motley Fool Australia has recommended Reliance Worldwide Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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