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Non-core disposal further reduces gearing

Renewi 12 September 2019 Update
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Renewi

Non-core disposal further reduces gearing

Disposal

Industrial support services

12 September 2019

Price

30.96p

Market cap

£248m

€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

2.8

0.8

(49.0)

Rel (local)

1.1

1.0

(49.2)

52-week high/low

63.6p

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

Canada disposal

End September tbc

H120 update

Early October tbc

Reym disposal completion

End October tbc

Euronext Amsterdam secondary listing

H220e tbc

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

The previously flagged intention to sell Reym has crystallised through the announced disposal to REMONDIS Group for an EV of €64m (or 5.4x EBITDA). This move modestly dilutes our earnings estimates, further reduces net debt and reinforces Renewi’s waste-to-product recycling credentials. Gearing levels may still be high for risk-averse investors currently but the trend is clearly downwards. P/E multiples remain firmly in single digits currently and our estimates show a yield crossover in FY21.

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

5.9

10.0

03/19

1,780.7

63.1

6.0

1.7

5.8

4.9

03/20e

1,703.5

47.4

4.5

1.7

7.8

4.9

03/21e

1,758.3

69.0

6.5

2.7

5.3

7.9

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.

Reym exit modestly earnings dilutive and lowers debt

Reym is a Netherlands-based industrial cleaning services business focused on the oil & gas industry and, as such, does not fit in with Renewi’s sharpened strategic focus on waste-to-product businesses. The disposal, subject to competition authority clearance, is expected to complete before the end of October. As part of the sale, long-term contracts regarding the supply of by-product waste inflows from Reym to ATM (largely in the form of combustible materials used in energy generation for various processes) have been put in place and there are no wider business implications. An associated €28m loss on disposal is substantially a goodwill write-down effect and the transaction leaves ATM (remediation of soil and contaminated water) as the sole Hazardous divisional business now.

Reflecting this latest disposal, we have reduced our earnings expectation by 3–5% in each of our forecast years. (We have treated Reym – as well as Canada Municipal – as a discontinued business; our earnings estimates are for the ongoing businesses only.) Our end-FY20 core net debt projection is now c €462m, equivalent to c 2.8x continuing business EBITDA generated in the year. An H120 pre-close trading update is anticipated in the coming weeks and we will review our estimates more fully then but, adjusting for the Reym transaction only, core net debt:EBITDA declines to 2.4x by the end of FY21 and 2.2x one year further out in our revised model.

Valuation: Risk reducing, attractive yield

Renewi’s share price has not really responded to the business disposal announcements since its FY19 results announcement in May, in our view. Perhaps gearing ratios are still too rich for investors currently, but there has been a clear step down and the direction of travel is for further reductions over our estimate years. On our revised estimates, the current year P/E of 7.8x and EV/EBITDA (adjusted for pensions cash) of 4.6x reduce to 4.9x and 3.7x respectively by FY22. A flat expected dividend payout in FY20 still yields 4.9% and our estimates show uplifts in future periods.

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. Note: Estimates are for continuing businesses only.

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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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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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Australia

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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

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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).

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United States

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