Renewi — Preparing the ground for earnings recovery

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 — Preparing the ground for earnings recovery

Trading so far in H220 has matched management expectations at the headline level and FY20 guidance is unchanged. Outlook caveats in Commercial cause us to temper our expected future growth rate here pending further updates. Despite this, we anticipate that Renewi will enter FY21 with a more progressive corporate agenda – starting with its Euronext listing at the end of January – centred on improving profitability of the continuing businesses. Despite our moderated earnings growth profile, in our view the investment proposition is strengthening.

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Written by

Industrials

Renewi

Preparing the ground for earnings recovery

Trading update

Industrial support services

27 January 2020

Price

35.4p

Market cap

£283m

€1.17/£

Core group ongoing net debt
(ex-PPP/PFI finance and IFRS 16 leases, €m) at end September 2019

514

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

(0.3)

11.2

19.8

Rel (local)

0.3

6.4

6.8

52-week high/low

37.2p

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

Euronext Amsterdam secondary listing

30 January

Year end

March

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

Trading so far in H220 has matched management expectations at the headline level and FY20 guidance is unchanged. Outlook caveats in Commercial cause us to temper our expected future growth rate here pending further updates. Despite this, we anticipate that Renewi will enter FY21 with a more progressive corporate agenda – starting with its Euronext listing at the end of January – centred on improving profitability of the continuing businesses. Despite our moderated earnings growth profile, in our view the investment proposition is strengthening.

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

7.1

8.4

03/19

1,780.7

63.1

6.0

1.7

6.9

4.0

03/20e

1,675.7

39.7

3.7

1.7

11.1

4.0

03/21e

1,705.6

50.1

4.8

2.5

8.7

5.9

Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items. Estimates are now on an IFRS 16 basis and for continuing businesses only.

Q3/FY20e in line but some caution on outlook

Overall Q3 trading was as expected, with Commercial trading tracking slightly lower than at the interim stage; construction-related activity represent c 20% of the division’s Netherlands revenues on an annualised basis and potential regulatory changes on per/polyfluoroalkyl contamination appears to be causing some project delays. Firmer service pricing is also helping to offset ongoing low recyclate prices. Elsewhere, management remains cautiously optimistic on ATM’s progressive resumption of soil treatment activity while Monostreams and UK Municipal activities are said to have met management expectations and FY20 guidance is unchanged.

We have lowered our underlying FY21 and FY22 PBT estimates by €8m and €6m respectively, chiefly due to the current Commercial/construction outlook with a smaller Hazardous adjustment (backing out synergies attributable to the disposed Reym business). Our FY20 earnings projections are unchanged. However, FY20 net exceptional charges now rise by €22.5m to reflect additional ELWA contract costs (as guided, €10m asset impairment, c €15m onerous contract provisions) less an H1 provision reversal relating to agreements with Dutch incinerator AEB, which is fully operational again. Core net debt is tracking below 3x EBITDA and, if this remains the case at the year end, would represent a better outturn than we currently model.

Valuation: Re-rating potential

Renewi’s share price rallied strongly after its ATM announcement in December, reaching a 12-month high of 37.2p, settling back to current levels subsequently. Even after a share price rise of almost 30% in just over a month, Renewi’s P/E for FY21 (year one of earnings recovery from trough FY20 levels) remains in single digits at 8.7x with a bank-debt based EV/EBITDA of 5.3x. Management aims to deliver forward earnings momentum from a simplified business with leading environmental credentials and reducing gearing levels. These are all desirable attributes from an investor perspective and, subject to delivery, in our view there is clear re-rating potential.

Exhibit 1: Financial summary

€m

2018

2018

2019

2020e

2021e

2022e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Sterling

Euros

Euros

Euros

Euros

Euros

Revenue

 

 

1,565.7

1,760.3

1,780.7

1,675.7

1,705.6

1,740.3

Cost of Sales

 

 

(1,276.9)

(1,419.2)

(1,470.4)

(1,390.8)

(1,415.6)

(1,444.4)

Gross Profit

 

 

288.8

341.1

310.3

284.9

290.0

295.9

EBITDA

 

 

156.9

176.3

179.7

154.6

163.5

171.8

Operating Profit (before GW and except.)

69.1

82.5

85.5

74.0

81.4

88.2

Net Interest

 

 

(14.2)

(15.0)

(14.4)

(18.0)

(16.0)

(16.0)

Other Finance

 

 

(5.1)

(7.1)

(8.4)

(16.0)

(15.2)

(15.2)

JV/Associates

 

 

2.3

2.6

0.4

(0.3)

0.0

0.0

Intangible Amortisation

 

 

(5.8)

(6.7)

(6.4)

(6.6)

(6.6)

(6.6)

Non Trading & Exceptional Items

 

 

(95.7)

(108.4)

(145.1)

(93.8)

0.0

0.0

Profit Before Tax (Edison norm)

 

52.1

63.0

63.1

39.7

50.1

57.0

Pension net finance costs

 

 

(0.6)

(0.7)

(0.6)

(0.2)

(0.2)

(0.2)

Profit Before Tax (Renewi norm)

 

51.5

62.3

62.5

39.5

49.9

56.8

Profit Before Tax (statutory)

 

 

(50.0)

(52.8)

(89.0)

(60.9)

43.3

50.2

Tax - headline

 

 

2.6

1.4

12.4

(3.4)

(12.0)

(13.7)

Profit After Tax (norm)

 

 

39.1

47.2

47.5

29.9

38.1

43.3

Profit After Tax

 

 

(47.4)

(51.5)

(76.6)

(64.4)

31.3

36.5

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

799.9

799.9

796.7

794.6

794.6

794.6

EPS - Edison norm (p/c) FD

 

 

4.9

5.9

6.0

3.7

4.8

5.4

EPS - Renewi norm (p/c) FD

 

 

4.8

5.4

6.0

3.7

4.7

5.4

EPS - (p/c)

 

 

(5.9)

(6.8)

(11.7)

(8.1)

3.9

4.6

Dividend per share (p/c)

 

 

3.05

3.46

1.68

1.65

2.45

2.68

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

18.4

19.4

17.4

17.0

17.0

17.0

EBITDA Margin (%)

 

 

10.0

10.0

10.1

9.2

9.6

9.9

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

4.4

4.7

4.8

4.4

4.8

5.1

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

Fixed Assets

 

 

1,456.3

1,669.2

1,439.6

1,559.8

1,548.7

1,536.1

Intangible Assets

 

 

606.3

699.3

605.6

598.9

589.0

579.1

Tangible Assets (inc RoU assets)

 

 

623.0

710.8

629.1

753.6

752.4

749.7

Investments

 

 

227.0

259.1

204.9

207.3

207.3

207.3

Current Assets

 

 

366.2

418.0

370.9

375.5

361.1

361.7

Stocks

 

 

23.3

26.6

26.0

24.6

25.0

25.5

Debtors

 

 

279.0

318.4

294.5

274.2

279.2

284.7

Cash

 

 

63.9

73.0

50.4

76.8

56.9

51.5

Current Liabilities

 

 

(545.8)

(631.0)

(717.8)

(589.2)

(594.8)

(609.5)

Creditors

 

 

(532.9)

(616.3)

(599.1)

(570.6)

(576.2)

(590.9)

Short term borrowings

 

 

(12.9)

(14.7)

(118.7)

(18.6)

(18.6)

(18.6)

Long Term Liabilities

 

 

(894.3)

(1,019.9)

(895.1)

(1,100.1)

(1,050.9)

(1,001.8)

Long term borrowings

 

 

(489.7)

(558.9)

(483.7)

(548.6)

(548.6)

(548.6)

Other long term liabilities

 

 

(404.6)

(461.0)

(411.4)

(551.5)

(502.3)

(453.2)

Net Assets

 

 

382.4

436.3

197.6

246.0

264.1

286.5

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

128.4

143.6

86.8

139.1

168.8

185.8

Net Interest

 

 

(16.9)

(19.1)

(17.7)

(28.6)

(22.2)

(22.2)

Tax

 

 

(6.7)

(7.6)

(13.2)

(3.4)

(12.0)

(13.7)

Net Capex

 

 

(81.2)

(92.3)

(99.4)

(94.7)

(105.8)

(105.8)

Acquisitions/disposals

 

 

(4.1)

(4.8)

22.7

101.3

0.0

0.0

Equity Financing

 

 

0.6

0.6

(2.7)

0.3

0.0

0.0

Dividends

 

 

(24.4)

(27.6)

(27.4)

(8.6)

(13.2)

(14.2)

Net Cash Flow

 

 

(4.3)

(7.3)

(50.9)

105.4

15.6

30.0

Opening core net debt/(cash)

 

 

423.9

492.7

500.0

552.0

490.4

510.3

IFRS16 lease capital repayments

 

 

0.0

0.0

0.0

(35.4)

(35.4)

(35.4)

Other

 

 

(10.5)

(0.0)

(1.1)

(8.4)

0.0

(0.0)

Closing core net debt/(cash)

 

 

438.7

500.0

552.0

490.4

510.3

515.7

Closing PPP/PFI non-recourse net debt

 

82.9

94.6

95.4

89.3

89.3

89.3

IFRS16 Lease finance

 

 

 

 

 

144.0

102.4

60.8

Source: Company accounts, Edison Investment Research. Note: Estimates are on an IFRS 16 basis and 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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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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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Level 12, Office 1205

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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 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “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 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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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.

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

1,185 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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