Renewi — Start to FY20 as expected

Renewi (LSE: RWI)

Last close As at 17/04/2024

GBP5.68

−2.00 (−0.35%)

Market capitalisation

GBP458m

More on this equity

Research: Industrials

Renewi — Start to FY20 as expected

Year to date trading has been in line with management’s expectations, which are also unchanged for the year as a whole. Forward momentum in the important Commercial division is continuing and we see other noted actions as positive, logical moves. Investor sentiment appears to have waned since the FY19 results announcement, but the investment case is gradually strengthening in our view and from a single-digit P/E base.

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Industrials

Renewi

Start to FY20 as expected

AGM update

Industrial support services

11 July 2019

Price

26.8p

Market cap

£215m

€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

(15.9)

(2.7)

(63.9)

Rel (local)

(17.4)

(3.8)

(62.8)

52-week high/low

75.0p

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

FY19 final DPS 0.5p to be paid

26 July 2019

Euronext Amsterdam secondary listing

H220e Tbc

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

Year to date trading has been in line with management’s expectations, which are also unchanged for the year as a whole. Forward momentum in the important Commercial division is continuing and we see other noted actions as positive, logical moves. Investor sentiment appears to have waned since the FY19 results announcement, but the investment case is gradually strengthening in our view and from a single-digit P/E base.

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

5.1

11.5

03/19

1,780.7

63.1

6.0

1.7

5.0

5.6

03/20e

1,833.5

49.7

4.7

1.7

6.4

5.6

03/21e

1,890.3

71.5

6.8

2.7

4.4

9.1

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

Commercial progressing

Price increases put through in the Netherlands and Belgium at the beginning of the calendar year together with incremental merger synergy benefits are sustaining forward momentum in the Commercial division. Tight incinerator capacity in these markets is likely to be exacerbated by a partial six-month shutdown at AEB; as a consequence there may be potential wider pricing implications over this period but existing contractual positions provide Renewi operations with some protection against this. Elsewhere, there is no further material update at this stage on ATM (the ongoing Hazardous Waste business) from a regulatory perspective, but the development of alternative markets for separated/graded components of remediated soil are ongoing.

Portfolio re-shaping and Green financing

The proposed sale of Canada Municipal operations was previously announced (on 17 June, expected completion by the end of H120) as was the expected repayment of €100m retail bonds maturing this month, effectively replaced by Green funding alternatives (ie €25m Green EU private placement notes in December and a €75m Green Belgian bond more recently). During H120 to date, Renewi has also made two small strategic in-fill investments in complementary waste processors in the Netherlands (ie 100% of Rotie Organics and 32% of RetourMatras, values not disclosed), which have natural fits with existing operations. The Canadian disposal may be seen as the most significant by investors, but these actions collectively suggest a proactive business enhancement agenda is being implemented.

Valuation: Compressed rating, attractive yield

In the seven weeks since the FY19 results announcement (on 23 May), Renewi’s share price has slipped back by c 26%. We consider this to be at odds with the unchanged estimates messaging at that time (and retained now) and the positive steps being taken since. On our expected and unchanged trough earnings in the current year, the company is trading on a 6.4x P/E and a 4.5x EV/EBITDA (adjusted for pension cash). These metrics compress further to 4.1x and 3.7x by FY22 on our estimates). Moreover, the prospective FY20 dividend yield – based on an unchanged payout expectation – is now 5.6%.

Exhibit 1: Financial summary

m

2014

2015

2016

2017

2018

2018

2019

2020e

2021e

2022e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Sterling

Sterling

Sterling

Sterling

Sterling

Euros

Euros

Euros

Euros

Euros

Revenue

 

 

633.4

601.4

614.8

779.2

1,565.7

1,760.3

1,780.7

1,833.5

1,890.3

1,927.1

Cost of Sales

 

 

(528.3)

(506.1)

(517.8)

(653.3)

(1,276.9)

(1,419.2)

(1,470.4)

(1,501.6)

(1,548.2)

(1,578.3)

Gross Profit

 

 

105.1

95.3

97.0

125.9

288.8

341.1

310.3

331.9

342.1

348.8

EBITDA

 

 

88.5

72.6

69.2

81.6

156.9

176.3

179.7

173.9

194.3

200.8

Optg Profit (before GW and except.)

45.6

34.3

33.4

36.5

69.1

82.5

85.5

78.2

97.1

102.1

Net Interest

 

 

(12.6)

(11.4)

(11.2)

(10.3)

(14.2)

(15.0)

(14.4)

(19.5)

(16.5)

(16.0)

Other Finance

 

 

(2.9)

(1.5)

(1.6)

(2.2)

(5.1)

(7.1)

(8.4)

(9.0)

(9.0)

(9.0)

JV/Associates

 

 

0.3

0.8

1.0

2.0

2.3

2.6

0.4

0.0

0.0

0.0

Intangible Amortisation

 

 

(2.3)

(1.9)

(1.8)

(2.1)

(5.8)

(6.7)

(6.4)

(6.4)

(6.4)

(6.4)

Non-trading & exceptional items 

(20.2)

(40.3)

(21.8)

(85.0)

(95.7)

(108.4)

(145.1)

(37.0)

0.0

0.0

Profit Before Tax (Edison norm)

 

30.4

22.2

21.6

26.0

52.1

63.0

63.1

49.7

71.5

77.1

Pension net finance costs

 

 

(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)

 

30.1

21.7

21.1

25.7

51.5

63.0

63.1

49.7

71.5

76.5

Profit Before Tax (statutory)

 

 

7.6

(20.5)

(2.5)

(61.4)

(50.0)

(52.8)

(89.0)

5.7

64.5

70.1

Tax - headline

 

 

(5.8)

2.3

(1.5)

0.5

2.6

1.4

12.4

(12.2)

(17.2)

(18.5)

Profit After Tax (norm)

 

 

23.2

20.5

19.3

20.1

39.1

47.2

47.5

37.5

54.4

58.6

Profit After Tax

 

 

1.8

(18.2)

(4.0)

(60.9)

(47.4)

(51.5)

(76.6)

(6.5)

47.4

51.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding (m) 

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

 

 

5.1

4.5

4.3

3.7

4.9

5.9

6.0

4.7

6.8

7.3

EPS - Renewi norm (p/c) FD

 

 

5.1

4.4

4.2

3.7

4.8

5.4

6.0

4.6

6.7

7.3

EPS - (p/c)

 

 

(6.3)

(3.8)

(0.9)

(11.4)

(5.9)

(6.8)

(11.7)

(0.9)

5.9

6.4

Dividend per share (p/c)

 

 

3.05

3.05

3.05

3.05

3.05

3.46

1.68

1.68

2.73

2.90

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

16.6

15.9

15.8

16.2

18.4

19.4

17.4

18.1

18.1

18.1

EBITDA Margin (%)

 

 

14.0

12.1

11.3

10.5

10.0

10.0

10.1

9.5

10.3

10.4

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

7.2

5.7

5.4

4.7

4.4

4.7

4.8

4.3

5.1

5.3

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

744.4

737.3

670.4

1,420.9

1,456.3

1,669.2

1,439.6

1,450.1

1,458.8

1,466.0

Intangible Assets

 

 

211.1

173.8

194.5

603.3

606.3

699.3

605.6

596.9

585.9

574.9

Tangible Assets

 

 

322.7

282.9

297.0

587.4

623.0

710.8

629.1

648.3

668.0

686.2

Investments

 

 

210.6

280.6

178.9

230.2

227.0

259.1

204.9

204.9

204.9

204.9

Current Assets

 

 

265.1

224.0

177.0

348.2

366.2

418.0

533.3

460.4

483.6

487.5

Stocks

 

 

9.4

6.9

6.8

19.9

23.3

26.6

26.0

26.6

27.4

27.9

Debtors

 

 

151.5

156.3

135.5

253.4

279.0

318.4

456.9

383.5

390.5

395.4

Cash

 

 

104.2

60.8

34.7

74.9

63.9

73.0

50.4

50.4

65.7

64.1

Current Liabilities

 

 

(229.6)

(277.4)

(227.2)

(483.2)

(545.8)

(631.0)

(758.3)

(717.0)

(717.7)

(694.3)

Creditors

 

 

(226.3)

(202.4)

(224.8)

(466.8)

(532.9)

(616.3)

(639.6)

(623.8)

(624.5)

(631.1)

Short term borrowings

 

 

(3.3)

(75.0)

(2.4)

(16.4)

(12.9)

(14.7)

(118.7)

(93.2)

(93.2)

(63.2)

Long Term Liabilities

 

 

(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)

(140.8)

(224.9)

(482.4)

(489.7)

(558.9)

(483.7)

(483.7)

(483.7)

(483.7)

Other long-term liabilities 

(250.9)

(291.7)

(209.3)

(363.3)

(404.6)

(461.0)

(411.4)

(410.3)

(409.1)

(408.0)

Net Assets

 

 

275.2

251.4

186.0

440.2

382.4

436.3

319.5

299.6

331.9

367.6

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

78.6

55.8

72.2

27.9

128.4

143.6

86.8

123.2

176.3

191.2

Net Interest

 

 

(13.2)

(12.8)

(12.8)

(19.0)

(16.9)

(19.1)

(17.7)

(19.5)

(16.5)

(16.0)

Tax

 

 

(1.6)

(5.7)

(4.8)

(5.3)

(6.7)

(7.6)

(13.2)

(12.2)

(17.2)

(18.5)

Net Capex

 

 

(27.1)

(37.2)

(25.8)

(41.2)

(81.2)

(92.3)

(99.4)

(112.6)

(112.3)

(112.3)

Acquisitions/disposals

 

 

(54.1)

(67.3)

18.2

39.5

(4.1)

(4.8)

22.7

56.0

0.0

0.0

Equity Financing

 

 

0.2

0.1

0.3

136.5

0.6

0.6

(2.7)

0.0

(0.0)

0.0

Dividends

 

 

(13.7)

(13.7)

(13.7)

(15.1)

(24.4)

(27.6)

(27.4)

(13.5)

(15.0)

(15.9)

Net Cash Flow

 

 

(30.9)

(80.8)

33.6

123.3

(4.3)

(7.3)

(50.9)

21.5

15.3

28.4

Opening core net debt/(cash) 

177.3

152.9

155.0

192.6

423.9

492.7

500.0

552.0

526.5

511.2

HP finance leases

 

 

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

 

 

55.3

78.7

(71.2)

(354.6)

(10.5)

(0.0)

(1.3)

4.0

0.0

0.0

Closing core net debt/ (cash)

152.9

155.0

192.6

423.9

438.7

500.0

552.2

526.5

511.2

482.7

Closing PPP/PFI non-recourse net debt

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

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 research department of Edison 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.

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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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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 research department of Edison 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.

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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.

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FinTech Group — Strategic review

FY18 was a strong year for FinTech Group (FTG) with healthy 17% growth in revenues and expansion in margins. In recent weeks flatex has launched successfully in the Netherlands, with the entry cost considerably lower than expected. Consequently, management upgraded EBITDA guidance in May. Management believes it has all the components for growth (notably, the brokerage platform & banking licence) and has hired an investment bank to review various strategic options. Given the growth potential, we believe the shares remain attractive on c 16x consensus FY20 earnings.

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