Renewi — Further earnings momentum

Renewi (LSE: RWI)

Last close As at 23/04/2024

GBP5.68

5.00 (0.89%)

Market capitalisation

GBP454m

More on this equity

Research: Industrials

Renewi — Further earnings momentum

Renewi’s H122 pre-close statement contained commentary on firm trading in the Commercial division, slightly tempered by slower acceleration in activity at ATM, but nevertheless pointing to materially higher management expectations for FY22 as a whole. An improving rate of earnings progress and healthy cash flows are two clear positives for investors.

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Industrials

Renewi

Further earnings momentum

H122 pre-close update

Industrial support services

8 October 2021

Price

690p

Market cap

£552m

€1.17/£

Core group ongoing net debt
(ex-PPP/PFI finance and IFRS 16 leases, €m) at end March 2021

333

Shares in issue

80.0m

Free float

98.8%

Code

RWI

Primary exchange

LSE

Secondary exchange

Euronext Amsterdam

Share price performance

%

1m

3m

12m

Abs

19.0

17.0

191.8

Rel (local)

21.4

18.3

141

52-week high/low

690.0p

206.0p

Business description

Renewi is a leading waste-to-product company in some of the world’s most advanced circular economies with operations primarily in the Netherlands, Belgium and the UK. Its activities span the collection, processing and resale of industrial, hazardous and municipal waste.

Next events

Capital markets event

12 October

H122 results

9 November

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

Renewi’s H122 pre-close statement contained commentary on firm trading in the Commercial division, slightly tempered by slower acceleration in activity at ATM, but nevertheless pointing to materially higher management expectations for FY22 as a whole. An improving rate of earnings progress and healthy cash flows are two clear positives for investors.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

03/20

1,775.4

54.3

53.6

5.2

15.1

0.6

03/21

1,693.6

47.1

44.7

0.0

18.1

N/A

03/22e

1,805.8

68.1

64.1

0.0

12.6

N/A

03/23e

1,853.1

78.2

73.6

17.6

10.9

2.2

Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items. FY20- are on an IFRS 16 basis.

Positive Commercial volumes and pricing

Core volume growth in the first five months of H122 (Netherlands +2%, Belgium +15% y-o-y) means Commercial activity is now only slightly below pre COVID-19 levels both countries. Healthy construction waste, a recovering hospitality sector and sustained strength in recyclate prices is driving improved performance compared to earlier expectations. ATM (soil/water/chemical treatment) is also progressing but at a slower rate than anticipated; thermally treated soil is being placed into the market at contracted rates but inbound soil volumes are behind (owing to slower project starts and approvals). Elsewhere, Coolrec (fridge and small electrical item recycling) is the pick of the Specialities division due to a combination of rising volumes and higher metals prices. Rising profits coupled with controlled working capital and replacement capex lines means that core net debt:EBITDA is now below 2.0x at H122 (versus 2.2x EBITDA at the year-end FY21).

Estimates raised again

The Commercial division dominates group profitability and is driving up management expectations; based on an improved mix our earnings estimates have increased by c 20% for FY22 and 8–10% in FY23 and FY24. Renewi is committed to spending €80m+ in its innovation programme, targeting €20m incremental EBIT by the end of FY25 and we expect to hear more on these areas at a forthcoming capital markets event on 12 October. The other two strategic workstreams (ie digitising/improving business efficiency and ATM’s recovery) are also progressing.

Valuation: Organic and secular growth play

Having risen by more than 60% ytd, Renewi’s share price has regained to levels last seen three years ago. We have upgraded earnings a number of times based on reported trading since the beginning of the year and feel this has been the primary short term share price driver. It is relatively early days in the latest strategic phase which is designed to deliver a material and sustainable uplift in group profitability additionally underpinned by what should be secular growth in recycling activity levels. The current-year valuation multiples (P/E 12.6x and EV/EBITDA adjusted for pensions cash 5.6x) still do not suggest the rating is fully aligned with Renewi’s prospects in our view.

Exhibit 1: Financial summary

m's

2018

2018

2019

2020

2021

2022e

2023e

2024e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Sterling

Euros

Euros

Euros

Euros

Euros

Euros

Euros

Revenue

 

 

1,565.7

1,760.3

1,780.7

1,775.4

1,693.6

1,805.8

1,853.1

1,918.3

Cost of Sales

 

 

(1,276.9)

(1,419.2)

(1,470.4)

(1,467.5)

(1,408.5)

(1,497.3)

(1,531.8)

(1,581.0)

Gross Profit

 

 

288.8

341.1

310.3

307.9

285.1

308.5

321.2

337.3

EBITDA

 

 

156.9

176.3

179.7

167.1

159.8

183.4

195.0

203.4

Operating Profit (before GW and except.)

 

69.1

82.5

85.5

87.6

73.0

95.1

105.2

112.1

Net Interest

 

 

(14.2)

(15.0)

(14.4)

(18.5)

(14.0)

(13.5)

(13.5)

(13.5)

Other Finance

 

 

(5.1)

(7.1)

(8.4)

(15.7)

(13.5)

(13.5)

(13.5)

(13.5)

JV/Associates

 

 

2.3

2.6

0.4

0.9

1.6

0.0

0.0

0.0

Intangible Amortisation

 

 

(5.8)

(6.7)

(6.4)

(6.4)

(3.3)

(3.3)

(3.3)

(3.3)

Non Trading & Exceptional Items

 

 

(95.7)

(108.4)

(145.1)

(107.1)

(25.9)

(10.0)

(12.0)

(6.0)

Profit Before Tax (Edison norm)

 

 

52.1

63.0

63.1

54.3

47.1

68.1

78.2

85.1

Pension net finance costs

 

 

(0.6)

(0.7)

(0.6)

(0.2)

0.3

0.0

0.0

0.0

Profit Before Tax (Renewi norm)

 

 

51.5

62.3

62.5

54.1

47.4

68.1

78.2

85.1

Profit Before Tax (statutory)

 

 

(50.0)

(52.8)

(89.0)

(59.4)

18.2

54.8

62.9

75.8

Tax - headline

 

 

2.6

1.4

12.4

(1.1)

(7.2)

(16.3)

(18.8)

(20.4)

Profit After Tax (norm)

 

 

39.1

47.2

47.5

41.0

35.5

51.8

59.4

64.7

Profit After Tax

 

 

(47.4)

(51.5)

(76.6)

(60.5)

11.0

38.5

44.1

55.4

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

80.0

80.0

79.7

79.5

79.5

8.0

8.0

8.0

EPS - Edison norm (p/c) FD

 

 

48.6

58.7

60.3

53.6

44.7

64.1

73.6

80.2

EPS - Renewi norm (p/c) FD

 

 

48.0

54.0

59.7

53.5

45.0

64.1

73.6

80.2

EPS - (p/c)

 

 

(59.1)

(67.8)

(116.5)

(98.0)

13.9

47.3

54.3

68.5

Dividend per share (p/c)

 

 

30.5

34.6

16.8

5.2

0.0

0.0

17.6

20.5

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

18.4

19.4

17.4

17.3

16.8

17.1

17.3

17.6

EBITDA Margin (%)

 

 

10.0

10.0

10.1

9.4

9.4

10.2

10.5

10.6

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

 

4.4

4.7

4.8

4.9

4.3

5.3

5.7

5.8

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

1,456.3

1,669.2

1,439.6

1,616.8

1,617.8

1,641.8

1,681.0

1,718.7

Intangible Assets

 

 

606.3

699.3

605.6

610.1

602.2

594.8

587.4

580.0

Tangible Assets (inc RoU assets)

 

 

623.0

710.8

629.1

790.9

794.5

832.6

879.2

924.3

Investments

 

 

227.0

259.1

204.9

215.8

221.1

214.4

214.4

214.4

Current Assets

 

 

366.2

418.0

533.3

503.3

338.4

331.1

327.8

328.5

Stocks

 

 

23.3

26.6

26.0

20.7

20.6

21.9

22.4

23.1

Debtors

 

 

279.0

318.4

456.9

288.1

266.3

279.2

286.0

294.7

Cash

 

 

63.9

73.0

50.4

194.5

51.5

30.0

19.3

10.7

Current Liabilities

 

 

(545.8)

(631.0)

(758.3)

(635.2)

(644.6)

(642.1)

(647.2)

(653.5)

Creditors

 

 

(532.9)

(616.3)

(639.6)

(618.4)

(632.3)

(629.8)

(634.9)

(641.2)

Short term borrowings

 

 

(12.9)

(14.7)

(118.7)

(16.8)

(12.3)

(12.3)

(12.3)

(12.3)

Long Term Liabilities

 

 

(894.3)

(1,019.9)

(895.1)

(1,249.6)

(1,068.6)

(1,049.3)

(1,040.6)

(1,031.8)

Long term borrowings

 

 

(489.7)

(558.9)

(483.7)

(634.9)

(382.8)

(382.8)

(402.8)

(422.8)

Other long term liabilities

 

 

(404.6)

(461.0)

(411.4)

(614.7)

(685.8)

(666.5)

(637.8)

(609.0)

Net Assets

 

 

382.4

436.3

319.5

235.3

243.1

281.5

320.9

361.9

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

128.4

143.6

86.8

167.8

258.2

175.7

183.7

197.9

Net Interest

 

 

(16.9)

(19.1)

(17.7)

(27.0)

(20.6)

(20.7)

(20.7)

(20.7)

Tax

 

 

(6.7)

(7.6)

(13.2)

(10.1)

(14.8)

(13.8)

(16.3)

(18.8)

Net Capex

 

 

(81.2)

(92.3)

(99.4)

(73.4)

(62.3)

(122.3)

(132.3)

(132.3)

Acquisitions/disposals

 

 

(4.1)

(4.8)

22.7

81.0

2.4

0.0

0.0

0.0

Equity Financing

 

 

0.6

0.6

(2.7)

0.6

0.4

0.0

0.0

0.0

Dividends

 

 

(24.4)

(27.6)

(27.4)

(8.6)

0.0

0.0

(4.7)

(14.4)

Net Cash Flow

 

 

(4.3)

(7.3)

(50.9)

130.3

163.3

18.9

9.7

11.8

Opening core net debt/(cash)

 

 

423.9

492.7

500.0

552.0

457.2

343.6

365.1

395.8

IFRS16 lease capital repayments

 

 

0.0

0.0

0.0

(38.5)

(40.4)

(40.4)

(40.4)

(40.4)

Other

 

 

(10.5)

(0.0)

(1.1)

3.0

(9.3)

0.0

0.0

0.0

Closing core net debt/(cash)

 

 

438.7

500.0

552.0

457.2

343.6

365.1

395.8

424.4

Closing PPP/PFI non-recourse net debt

 

82.9

94.6

95.4

90.0

87.8

87.8

87.8

87.8

IFRS16 Lease finance

 

 

 

 

 

202.7

247.8

249.9

252.0

254.1

Company data, Edison Investment Research. Note: *EPS for continuing businesses in FY20 was 51c and the 54c figure shown includes discontinued operations. Please note that the company’s shares underwent a 10:1 consolidation on 19 July 2021.


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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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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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.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia


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 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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