Renewi — All divisions on track

Renewi (LSE: RWI)

Last close As at 28/03/2024

GBP5.64

−1.00 (−0.18%)

Market capitalisation

GBP456m

More on this equity

Research: Industrials

Renewi — All divisions on track

Management’s unchanged guidance and ongoing focus on debt reduction were the financial headlines for Renewi at the halfway point of FY20. Continued progress in the company’s largest division plus ATM appearing to be closer to resolving soil remediation issues are the two key pre-close messages, in our view. Other divisions are also performing in line with management expectations. Valuation multiples remain low in conventional terms with earnings and dividend growth expected to resume in FY21 on our estimates.

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Written by

Industrials

Renewi

All divisions on track

H120 pre close update

Industrial support services

2 October 2019

Price

32.55p

Market cap

£260m

€1.12/£

Core group ongoing net debt (ex-PPP/PFI finance, €m) at end March 2019

552

Shares in issue

800.1m

Free float

99.5%

Code

RWI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.8

13.6

(42.3)

Rel (local)

2.6

15.2

(41.1)

52-week high/low

60.0p

21.9p

Business description

Renewi is a waste-to-product company with operations primarily in the Netherlands, Belgium and the UK, and was formed from the merger between Shanks Group and Van Gansewinkel Group in 2017. Its activities span the collection, processing and resale of industrial, hazardous and municipal waste.

Next events

Reym disposal completion

End October (tbc)

H120 results

7 November

Euronext Amsterdam secondary listing

H220e tbc

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

Management’s unchanged guidance and ongoing focus on debt reduction were the financial headlines for Renewi at the halfway point of FY20. Continued progress in the company’s largest division plus ATM appearing to be closer to resolving soil remediation issues are the two key pre-close messages, in our view. Other divisions are also performing in line with management expectations. Valuation multiples remain low in conventional terms with earnings and dividend growth expected to resume in FY21 on our estimates.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

03/18

1,760.3

63.0

5.9

3.5

6.2

9.5

03/19

1,780.7

63.1

6.0

1.7

6.1

4.6

03/20e

1,703.5

47.4

4.5

1.7

8.2

4.6

03/21e

1,758.3

69.0

6.5

2.7

5.6

7.5

Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items. Estimates are for continuing businesses only.

Adapting and responding to market challenges

The end H120 update reiterated the AGM message regarding ongoing progress in the Commercial division sustained by firmer pricing and synergy benefits. There are likely to be general market effects from trading difficulties at AEB in the Netherlands (most obviously, reduced incinerator capacity and reduced refuse derived fuel or RDF intake) as the supply chain adjusts. Renewi’s contractual positions and other mitigating actions taken lead management to believe that there will be little impact on the company during FY20.

Encouragingly, ATM appears to be clearing soil testing hurdles to satisfy the regulator in Holland and a re-opening of the market is expected although no firm date is provided. Additionally, ATM has developed potential markets for separated/graded soil components sufficiently to invest in processing capacity in this area; once certified, these products will aid diversification in end market application and revenue generation for the company.

Apart from a new service agreement at Derby, no further detailed comments were made on UK Municipal or Monostreams, which are performing in line with board expectations. This perhaps indicates greater stability in these two divisions following portfolio adjustments and some management changes, respectively.

Other corporate activities, ie green financing initiatives and business disposals, are as previously reported save for confirmation that the Canadian Municipal disposal completed and the initial C$82m/c €55m proceeds were received prior to the period end.

Valuation: Single-digit multiples, c 5% dividend yield

Renewi’s share price is broadly flat year-to-date and yet to regain the year high of 37p seen just prior to the FY19 results announcement in May. On our unchanged estimates, the company’s P/E and EV/EBITDA (adjusted for pensions cash) compress to 5.2x and 3.8x respectively by FY22 with a prospective FY20 dividend yield of 4.6%.

Exhibit 1: Financial summary

m

2012

2013

2014

2015

2016

2017

2018

2018

2019

2020e

2021e

2022e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Sterling

Sterling

Sterling

Sterling

Sterling

Sterling

Sterling

Euros

Euros

Euros

Euros

Euros

Revenue

 

 

750.1

614.6

633.4

601.4

614.8

779.2

1,565.7

1,760.3

1,780.7

1,703.5

1,758.3

1,793.1

Cost of Sales

 

 

(622.9)

(511.6)

(528.3)

(506.1)

(517.8)

(653.3)

(1,276.9)

(1,419.2)

(1,470.4)

(1,395.2)

(1,440.0)

(1,468.5)

Gross Profit

 

 

127.2

103.0

105.1

95.3

97.0

125.9

288.8

341.1

310.3

308.3

318.3

324.6

EBITDA

 

 

105.0

88.4

88.5

72.6

69.2

81.6

156.9

176.3

179.7

164.4

183.8

190.3

Optg Profit (before GW and except.)

53.4

44.9

45.6

34.3

33.4

36.5

69.1

82.5

85.5

75.2

93.1

98.1

Net Interest

 

 

(10.8)

(10.8)

(12.6)

(11.4)

(11.2)

(10.3)

(14.2)

(15.0)

(14.4)

(18.8)

(15.0)

(14.5)

Other Finance

 

 

(6.4)

(3.9)

(2.9)

(1.5)

(1.6)

(2.2)

(5.1)

(7.1)

(8.4)

(9.0)

(9.0)

(9.0)

JV/Associates

 

 

0.1

0.3

0.3

0.8

1.0

2.0

2.3

2.6

0.4

0.0

0.0

0.0

Intangible Amortisation

 

 

(3.7)

(2.5)

(2.3)

(1.9)

(1.8)

(2.1)

(5.8)

(6.7)

(6.4)

(6.4)

(6.4)

(6.4)

Non Trading & Exceptionals 

 

(2.9)

(37.8)

(20.2)

(40.3)

(21.8)

(85.0)

(95.7)

(108.4)

(145.1)

(65.0)

0.0

0.0

Profit Before Tax (Edison norm)

 

36.3

30.5

30.4

22.2

21.6

26.0

52.1

63.0

63.1

47.4

69.0

74.6

Pension net finance costs

 

 

0.2

(0.3)

(0.3)

(0.5)

(0.5)

(0.3)

(0.6)

0.0

0.0

0.0

0.0

(0.6)

Profit Before Tax (Renewi norm)

 

36.5

30.2

30.1

21.7

21.1

25.7

51.5

63.0

63.1

47.4

69.0

74.0

Profit Before Tax (statutory) 

 

29.9

(10.1)

7.6

(20.5)

(2.5)

(61.4)

(50.0)

(52.8)

(89.0)

(24.6)

62.0

67.6

Tax - headline

 

 

(4.2)

(1.1)

(5.8)

2.3

(1.5)

0.5

2.6

1.4

12.4

(11.6)

(16.6)

(17.9)

Profit After Tax (norm)

 

 

26.6

22.8

23.2

20.5

19.3

20.1

39.1

47.2

47.5

35.8

52.5

56.7

Profit After Tax

 

 

25.7

(11.2)

1.8

(18.2)

(4.0)

(60.9)

(47.4)

(51.5)

(76.6)

(36.2)

45.5

49.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

448.0

448.3

448.9

449.1

449.5

536.3

799.9

799.9

796.7

796.7

796.7

796.7

EPS - Edison norm (p/c) FD 

 

5.9

5.1

5.1

4.5

4.3

3.7

4.9

5.9

6.0

4.5

6.5

7.1

EPS - Renewi norm (p/c) FD 

 

6.0

5.0

5.1

4.4

4.2

3.7

4.8

5.4

6.0

4.4

6.5

7.0

EPS - (p/c)

 

 

5.7

(7.9)

(6.3)

(3.8)

(0.9)

(11.4)

(5.9)

(6.8)

(11.7)

(4.6)

5.7

6.2

Dividend per share (p/c)

 

 

3.05

3.05

3.05

3.05

3.05

3.05

3.05

3.46

1.68

1.68

2.73

2.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

17.0

16.8

16.6

15.9

15.8

16.2

18.4

19.4

17.4

18.1

18.1

18.1

EBITDA Margin (%)

 

 

14.0

14.4

14.0

12.1

11.3

10.5

10.0

10.0

10.1

9.7

10.5

10.6

Operating Margin (before GW and except.) (%)

7.1

7.3

7.2

5.7

5.4

4.7

4.4

4.7

4.8

4.4

5.3

5.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

751.6

772.1

744.4

737.3

670.4

1,420.9

1,456.3

1,669.2

1,439.6

1,385.1

1,393.8

1,401.0

Intangible Assets

 

 

271.4

251.8

211.1

173.8

194.5

603.3

606.3

699.3

605.6

573.9

562.9

551.9

Tangible Assets

 

 

390.9

375.3

322.7

282.9

297.0

587.4

623.0

710.8

629.1

606.3

626.0

644.2

Investments

 

 

89.3

145.0

210.6

280.6

178.9

230.2

227.0

259.1

204.9

204.9

204.9

204.9

Current Assets

 

 

233.6

247.3

265.1

224.0

177.0

348.2

366.2

418.0

533.3

415.8

436.6

443.3

Stocks

 

 

10.5

11.0

9.4

6.9

6.8

19.9

23.3

26.6

26.0

24.7

25.5

26.0

Debtors

 

 

163.3

160.9

151.5

156.3

135.5

253.4

279.0

318.4

456.9

340.7

346.9

351.2

Cash

 

 

59.8

75.4

104.2

60.8

34.7

74.9

63.9

73.0

50.4

50.4

64.3

66.1

Current Liabilities

 

 

(238.7)

(248.9)

(229.6)

(277.4)

(227.2)

(483.2)

(545.8)

(631.0)

(758.3)

(637.2)

(637.4)

(618.7)

Creditors

 

 

(226.5)

(230.7)

(226.3)

(202.4)

(224.8)

(466.8)

(532.9)

(616.3)

(639.6)

(608.7)

(608.9)

(615.2)

Short term borrowings

 

 

(12.2)

(18.2)

(3.3)

(75.0)

(2.4)

(16.4)

(12.9)

(14.7)

(118.7)

(28.5)

(28.5)

(3.5)

Long Term Liabilities

 

 

(375.9)

(444.2)

(504.7)

(432.5)

(434.2)

(845.7)

(894.3)

(1,019.9)

(895.1)

(894.0)

(892.8)

(891.7)

Long term borrowings

 

 

(253.8)

(234.5)

(253.8)

(140.8)

(224.9)

(482.4)

(489.7)

(558.9)

(483.7)

(483.7)

(483.7)

(483.7)

Other long term liabilities

 

 

(122.1)

(209.7)

(250.9)

(291.7)

(209.3)

(363.3)

(404.6)

(461.0)

(411.4)

(410.3)

(409.1)

(408.0)

Net Assets

 

 

370.6

326.3

275.2

251.4

186.0

440.2

382.4

436.3

319.5

269.8

300.3

334.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

109.9

67.7

78.6

55.8

72.2

27.9

128.4

143.6

86.8

130.2

166.3

181.0

Net Interest

 

 

(13.4)

(11.5)

(13.2)

(12.8)

(12.8)

(19.0)

(16.9)

(19.1)

(17.7)

(18.8)

(15.0)

(14.5)

Tax

 

 

(7.1)

1.9

(1.6)

(5.7)

(4.8)

(5.3)

(6.7)

(7.6)

(13.2)

(11.6)

(16.6)

(17.9)

Net Capex

 

 

(74.8)

(50.1)

(27.1)

(37.2)

(25.8)

(41.2)

(81.2)

(92.3)

(99.4)

(106.1)

(105.8)

(105.8)

Acquisitions/disposals

 

 

(19.6)

(59.2)

(54.1)

(67.3)

18.2

39.5

(4.1)

(4.8)

22.7

106.0

0.0

0.0

Equity Financing

 

 

0.0

0.4

0.2

0.1

0.3

136.5

0.6

0.6

(2.7)

0.0

(0.0)

0.0

Dividends

 

 

(13.3)

(13.7)

(13.7)

(13.7)

(13.7)

(15.1)

(24.4)

(27.6)

(27.4)

(13.5)

(15.0)

(15.9)

Net Cash Flow

 

 

(18.3)

(64.5)

(30.9)

(80.8)

33.6

123.3

(4.3)

(7.3)

(50.9)

86.2

13.9

26.8

Opening core net debt/(cash) 

 

207.4

206.2

177.3

152.9

155.0

192.6

423.9

492.7

500.0

552.0

461.8

447.9

Finance leases

 

 

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

 

 

19.5

93.4

55.3

78.7

(71.2)

(354.6)

(10.5)

(0.0)

(1.1)

4.0

(0.0)

0.0

Closing core net debt/(cash) 

 

206.2

177.3

152.9

155.0

192.6

423.9

438.7

500.0

552.0

461.8

447.9

421.1

Closing PPP/PFI non-recourse net debt 

52.0

100.1

151.2

222.6

91.1

87.1

82.9

94.6

95.4

95.4

95.4

95.4

Source: Company accounts, Edison Investment Research. Estimates are for continuing businesses only.

General disclaimer and copyright

This report has been commissioned by Renewi and prepared and issued by Edison, in consideration of a fee payable by Renewi. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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This report has been commissioned by Renewi and prepared and issued by Edison, in consideration of a fee payable by Renewi. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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