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Research: Industrials
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.
Written by
Renewi |
Non-core disposal further reduces gearing |
Disposal |
Industrial support services |
12 September 2019 |
Share price performance
Business description
Next events
Analyst
Renewi is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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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Research: Real Estate
GCP Student Living (DIGS) is continuing to benefit from strong supply-demand fundamentals in the markets in which it operates, primarily in and around London. It is maintaining full occupancy, rents continue to grow ahead of inflation and profitability is showing the benefits of scale. Dividends are growing and cover building as new assets come on stream, and DIGS is well on track for full cover on a fully developed and let basis. Investor sentiment towards the sector is positive and the new London Plan appears to be adding to the scarcity value of DIGS’s London assets.