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ATM prudence and debt management actions

Renewi 1 May 2019 Update
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Renewi

ATM prudence and debt management actions

Year-end update

Industrial support services

1 May 2019

Price

33.0p

Market cap

£264m

£/€1.16

Core group net debt (ex PPP/PFI finance, €m) at end September 2018

496.1

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

40.6

29.6

(53.8)

Rel (local)

37.5

21.9

(53.2)

52-week high/low

86.9p

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 event

FY19 results

23 May 2019

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

Management flagged stronger Q4 trading, in line with its expectations. Netherlands soil remediation activities require regulatory approval and a prudent stance has been taken over resuming shipments there, which is the primary driver of our significant estimate reduction. In this light, the steps being taken for debt management, including a proposed dividend reduction, are entirely logical. Renewi’s rating is at depressed levels – we feel due to earnings uncertainty and higher debt levels – but potential resolutions to both issues are visible. The company is still yielding 4.4%.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

03/18

1,779.1

59.1

5.5

3.5

7.0

9.1

03/19e

1,792.3

62.3

5.8

1.7

6.6

4.4

03/20e

1,799.4

49.2

4.6

1.7

8.3

4.4

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

FY19 in line, guidance reduced for FY20

The Commercial division had a stronger Q4 including delivering planned synergies following price increases at the start of the quarter. As seen at the H1 stage, other divisional performances remain variable but overall group profitability was as management anticipated. Cost-reduction actions are underway in all divisions to improve performance and plant efficiencies, which will strengthen the group platform for future growth. Separately, we now expect total exceptional charges, which are mainly non cash, of €80m+ in H2, over half of which (c €45m) relates to the Derby energy from waste project delays and financial difficulties at prime contractor Interserve. Other components include synergy delivery costs and proactive provisioning at UK Municipal ELWA, given possible Brexit impacts.

Looking ahead, guidance is now to expect no resumption of remediated soil deliveries from ATM in FY20, which explains over two-thirds of our 36% lower group PBT for that year (with a 20%+ reduction in FY21 also). The existing 3.5x net debt:EBITDA covenant has been extended for a further year (previously due to step down to 3.25x in June), which looks sensible given our projected c 3x end FY19 position and allowing for some normal seasonal working capital fluctuation. A flagged dividend reduction (to 1.45p/1.68c) for the year including a proposed 0.5p final, versus our previous expectation of a flat 3.5c (3.05p) payout), forms part of this debt management strategy. Previously flagged disposals (ie Hazardous, Reym, and Municipal, Canada) are said to be progressing, with the latter business at the due diligence stage, and are expected to reduce net debt in due course.

Valuation: Event-driven net debt reduction upside

Renewi’s share price has rallied to January 2019 levels but remains over 60% below its 86.9p year high (June 2018) with estimates also under pressure during this time. Factoring in our revised forecasts, the FY20 P/E has compressed to 8.3x with EV/EBITDA of 4.9x, which become 5.7x and 4.2x respectively one year further out. The group net debt position could improve significantly if disposals complete and/or the ATM position is resolved, although the timing is uncertain. Even following the proposed dividend reduction, Renewi is yielding 4.4%.

Exhibit 1: Financial summary

m's

2012

2013

2014

2015

2016

2017

2018

2018

2019e

2020e

2021e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Sterling

Sterling

Sterling

Sterling

Sterling

Sterling

Sterling

Euros

Euros

Euros

Euros

Revenue

 

 

750.1

614.6

633.4

601.4

614.8

779.2

1,565.7

1,779.1

1,792.3

1,799.4

1,855.8

Cost of Sales

 

 

(622.9)

(511.6)

(528.3)

(506.1)

(517.8)

(653.3)

(1,276.9)

(1,402.2)

(1,467.1)

(1,474.4)

(1,520.6)

Gross Profit

 

 

127.2

103.0

105.1

95.3

97.0

125.9

288.8

376.9

325.2

325.0

335.2

EBITDA

 

 

105.0

88.4

88.5

72.6

69.2

81.6

156.9

176.3

186.8

184.0

204.3

Operating Profit (before GW and except.)

53.4

44.9

45.6

34.3

33.4

36.5

69.1

78.5

85.0

78.2

97.1

Net Interest

 

 

(10.8)

(10.8)

(12.6)

(11.4)

(11.2)

(10.3)

(14.2)

(16.0)

(16.3)

(20.0)

(17.5)

Other Finance

 

 

(6.4)

(3.9)

(2.9)

(1.5)

(1.6)

(2.2)

(5.1)

(6.0)

(7.0)

(9.0)

(9.0)

JV/Associates

 

 

0.1

0.3

0.3

0.8

1.0

2.0

2.3

2.6

0.6

0.0

0.0

Intangible Amortisation

 

 

(3.7)

(2.5)

(2.3)

(1.9)

(1.8)

(2.1)

(5.8)

(6.5)

(6.4)

(6.4)

(6.4)

Non Trading & Exceptional Items

 

 

(2.9)

(37.8)

(20.2)

(40.3)

(21.8)

(85.0)

(95.7)

(108.6)

(104.4)

(25.0)

0.0

Profit Before Tax (Edison norm)

 

36.3

30.5

30.4

22.2

21.6

26.0

52.1

59.1

62.3

49.2

70.5

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

Profit Before Tax (Renewi norm)

 

36.5

30.2

30.1

21.7

21.1

25.7

51.5

59.1

62.3

49.2

70.5

Profit Before Tax (statutory)

 

 

29.9

(10.1)

7.6

(20.5)

(2.5)

(61.4)

(50.0)

(56.7)

(49.2)

17.1

63.5

Tax - headine

 

 

(4.2)

(1.1)

(5.8)

2.3

(1.5)

0.5

2.6

2.7

(15.6)

(12.1)

(16.9)

Profit After Tax (norm)

 

 

26.6

22.8

23.2

20.5

19.3

20.1

39.1

44.3

46.7

37.2

53.6

Profit After Tax

 

 

25.7

(11.2)

1.8

(18.2)

(4.0)

(60.9)

(47.4)

(54.0)

(64.8)

5.1

46.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

448.0

448.3

448.9

449.1

449.5

536.3

799.9

799.9

798.7

798.7

798.7

EPS - Edison norm (p/c) FD

 

 

5.9

5.1

5.1

4.5

4.3

3.7

4.9

5.5

5.8

4.6

6.7

EPS - Renewi norm (p/c) FD

 

 

6.0

5.0

5.1

4.4

4.2

3.7

4.8

5.4

5.7

4.5

6.6

EPS - (p/c)

 

 

5.7

(7.9)

(6.3)

(3.8)

(0.9)

(11.4)

(5.9)

(6.7)

(8.1)

0.6

5.8

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

17.0

16.8

16.6

15.9

15.8

16.2

18.4

21.2

18.1

18.1

18.1

EBITDA Margin (%)

 

 

14.0

14.4

14.0

12.1

11.3

10.5

10.0

9.9

10.4

10.2

11.0

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

7.1

7.3

7.2

5.7

5.4

4.7

4.4

4.4

4.7

4.3

5.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

751.6

772.1

744.4

737.3

670.4

1,420.9

1,456.3

1,661.0

1,586.6

1,593.0

1,591.7

Intangible Assets

 

 

271.4

251.8

211.1

173.8

194.5

603.3

606.3

691.1

678.1

667.4

654.0

Tangible Assets

 

 

390.9

375.3

322.7

282.9

297.0

587.4

623.0

710.8

714.6

729.8

741.9

Investments

 

 

89.3

145.0

210.6

280.6

178.9

230.2

227.0

259.1

193.9

195.8

195.8

Current Assets

 

 

233.6

247.3

265.1

224.0

177.0

348.2

366.2

418.0

399.2

373.2

374.7

Stocks

 

 

10.5

11.0

9.4

6.9

6.8

19.9

23.3

26.6

25.5

25.5

26.2

Debtors

 

 

163.3

160.9

151.5

156.3

135.5

253.4

279.0

318.4

315.3

317.1

324.0

Cash

 

 

59.8

75.4

104.2

60.8

34.7

74.9

63.9

73.0

58.4

30.6

24.5

Current Liabilities

 

 

(238.7)

(248.9)

(229.6)

(277.4)

(227.2)

(483.2)

(545.8)

(622.8)

(716.4)

(706.4)

(676.4)

Creditors

 

 

(226.5)

(230.7)

(226.3)

(202.4)

(224.8)

(466.8)

(532.9)

(608.1)

(604.2)

(594.2)

(594.2)

Short term borrowings

 

 

(12.2)

(18.2)

(3.3)

(75.0)

(2.4)

(16.4)

(12.9)

(14.7)

(112.2)

(112.2)

(82.2)

Long Term Liabilities

 

 

(375.9)

(444.2)

(504.7)

(432.5)

(434.2)

(845.7)

(894.3)

(1,019.9)

(915.3)

(914.0)

(912.7)

Long term borrowings

 

 

(253.8)

(234.5)

(253.8)

(140.8)

(224.9)

(482.4)

(489.7)

(558.9)

(489.1)

(489.1)

(489.1)

Other long term liabilities

 

 

(122.1)

(209.7)

(250.9)

(291.7)

(209.3)

(363.3)

(404.6)

(461.0)

(426.2)

(424.9)

(423.6)

Net Assets

 

 

370.6

326.3

275.2

251.4

186.0

440.2

382.4

436.3

354.1

345.8

377.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

109.9

67.7

78.6

55.8

72.2

27.9

128.4

143.3

104.3

134.4

185.7

Net Interest

 

 

(13.4)

(11.5)

(13.2)

(12.8)

(12.8)

(19.0)

(16.9)

(19.3)

(18.5)

(20.0)

(17.5)

Tax

 

 

(7.1)

1.9

(1.6)

(5.7)

(4.8)

(5.3)

(6.7)

(7.6)

(9.7)

(12.1)

(16.9)

Net Capex

 

 

(74.8)

(50.1)

(27.1)

(37.2)

(25.8)

(41.2)

(81.2)

(92.6)

(114.1)

(116.6)

(112.3)

Acquisitions/disposals

 

 

(19.6)

(59.2)

(54.1)

(67.3)

18.2

39.5

(4.1)

(4.7)

20.8

0.0

0.0

Equity Financing

 

 

0.0

0.4

0.2

0.1

0.3

136.5

0.6

0.7

(0.6)

0.0

0.0

Dividends

 

 

(13.3)

(13.7)

(13.7)

(13.7)

(13.7)

(15.1)

(24.4)

(27.8)

(27.5)

(13.5)

(15.0)

Net Cash Flow

 

 

(18.3)

(64.5)

(30.9)

(80.8)

33.6

123.3

(4.3)

(7.9)

(45.2)

(27.8)

23.9

Opening core net debt/ (cash)

 

 

207.4

206.2

177.3

152.9

155.0

192.6

423.9

492.7

500.6

542.9

570.7

HP finance leases

 

 

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

2.8

0.0

0.0

Closing core net debt/ (cash)

 

 

206.2

177.3

152.9

155.0

192.6

423.9

438.7

500.6

542.9

570.7

546.8

Closing PPP/PFI non-recourse net debt

 

52.0

100.1

151.2

222.6

91.1

87.1

82.9

84.6

90.5

90.5

90.5

Source: Company, Edison Investment Research. Note: *Full FY18 euro results have not been published to date; the presented P&L and cash flow statements should be taken as illustrative until that occurs.

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.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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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.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document (nor will such persons be able to purchase shares in the placing).

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a) (11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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