Renewi — Thermally treated soil ban lifted

Renewi (LSE: RWI)

Last close As at 25/04/2024

GBP5.89

36.00 (6.51%)

Market capitalisation

GBP475m

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Research: Industrials

Renewi — Thermally treated soil ban lifted

Renewi’s previously noted increasing confidence of improved ATM production volumes in 2020 have proved to be well founded as the ban on using thermally treated soil in the Netherlands has been lifted. This sets a positive backdrop for management’s forthcoming strategy update and an expected secondary listing on Euronext shortly. On unchanged estimates, it also brings into focus mid single-digit earnings multiples beyond the current year which, given the above, look low by conventional standards.

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Industrials

Renewi

Thermally treated soil ban lifted

ATM update

Industrial support services

20 December 2019

Price

27.1p

Market cap

£217m

€1.18/£

Core group ongoing net debt
(ex-PPP/PFI finance & 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

(6.6)

(11.3)

(21.9)

Rel (local)

(10.0)

(14.6)

(31.3)

52-week high/low

37.0p

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

H120 DPS to be paid

10 January

Euronext Amsterdam secondary listing

Q420e tbc

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

Renewi’s previously noted increasing confidence of improved ATM production volumes in 2020 have proved to be well founded as the ban on using thermally treated soil in the Netherlands has been lifted. This sets a positive backdrop for management’s forthcoming strategy update and an expected secondary listing on Euronext shortly. On unchanged estimates, it also brings into focus mid single-digit earnings multiples beyond the current year which, given the above, look low by conventional standards.

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

5.4

10.8

03/19

1,780.7

63.1

6.0

1.7

5.3

5.2

03/20e

1,680.7

39.7

3.7

1.7

8.6

5.2

03/21e

1,719.6

58.1

5.5

2.5

5.8

7.7

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.

Scope for improved ATM performance confirmed

ATM’s trading performance – especially in FY19 and FY20 – has been adversely affected by the 2018 national industry ban on the use of thermally treated soil (TGG) in the Netherlands. After an extensive and collaborative testing phase, the Dutch parliament and national regulator have now lifted this ban, allowing TGG to be used in industrial applications (eg construction, earthworks etc) subject to local regulator approval on a case-by-case basis.

In the first instance, as permits are secured, this should allow ATM to begin to clear its stockpile of TGG that had accumulated as a result of the ban. This will then allow the revenue-generating new intake of contaminated soil for treatment. In parallel, following recent investment we expect ATM to continue to develop potential markets for graded soil into alternative market applications. ATM’s other business lines (eg waste water, sludges and chemical waste treatment) have not been affected by the TGG ban and continue as normal.

Management has been understandably cautious regarding the prospective rate at which new permits are secured, leaving FY20 group earnings guidance unchanged. At the very least, the TGG news should support increased investor confidence in subsequent years’ estimates which have an element of ATM recovery already factored in. We believe that ATM’s FY20 EBIT contribution will be c €13m below FY17 levels and our existing estimates currently include the progressive recovery of some but not all of that differential by FY22.

Valuation: Impetus to boost rating

In the year to date, Renewi’s share price has largely traded within the 25–35p range, latterly drifting to current levels since before the 7 November H120 results announcement. The TGG news would seem to support our assertion that FY20 will be a trough year for earnings and subsequent years’ valuation multiples (eg FY21 P/E 5.8x, EV/EBITDA ex pensions cash 4.5x) look compelling. Further reduction in net debt and positive strategic messaging should also provide share price impetus.

Exhibit 1: Financial summary

m's

2018

2018

2019

2020e

2021e

2022e

Year end 31 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

1,680.7

1,719.6

1,754.3

Cost of Sales

 

 

(1,276.9)

(1,419.2)

(1,470.4)

(1,395.0)

(1,427.3)

(1,456.1)

Gross Profit

 

 

288.8

341.1

310.3

285.7

292.3

298.2

EBITDA

 

 

156.9

176.3

179.7

154.6

171.5

177.8

Operating Profit (before GW and except.)

69.1

82.5

85.5

74.0

89.4

94.2

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)

(61.3)

0.0

0.0

Profit Before Tax (Edison norm)

 

52.1

63.0

63.1

39.7

58.1

63.0

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

57.9

62.8

Profit Before Tax (statutory)

 

 

(50.0)

(52.8)

(89.0)

(28.4)

51.3

56.2

Tax - headline

 

 

2.6

1.4

12.4

(3.4)

(14.0)

(15.1)

Profit After Tax (norm)

 

 

39.1

47.2

47.5

29.9

44.2

47.9

Profit After Tax

 

 

(47.4)

(51.5)

(76.6)

(31.9)

37.4

41.1

 

 

 

 

 

 

 

 

 

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

5.5

6.0

EPS - Renewi norm (p/c) FD

 

 

4.8

5.4

6.0

3.7

5.5

6.0

EPS - (p/c)

 

 

(5.9)

(6.8)

(11.7)

(4.0)

4.7

5.1

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

10.0

10.1

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

4.4

4.7

4.8

4.4

5.2

5.4

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

Fixed Assets

 

 

1,456.3

1,669.2

1,439.6

1,569.8

1,558.7

1,546.1

Intangible Assets

 

 

606.3

699.3

605.6

598.9

589.0

579.1

Tangible Assets (inc Right of Use assets)

 

 

623.0

710.8

629.1

763.6

762.4

759.7

Investments

 

 

227.0

259.1

204.9

207.3

207.3

207.3

Current Assets

 

 

366.2

418.0

370.9

376.1

372.6

381.6

Stocks

 

 

23.3

26.6

26.0

24.7

25.2

25.7

Debtors

 

 

279.0

318.4

294.5

274.7

280.6

286.1

Cash

 

 

63.9

73.0

50.4

76.7

66.8

69.8

Current Liabilities

 

 

(545.8)

(631.0)

(717.8)

(586.4)

(590.5)

(602.7)

Creditors

 

 

(532.9)

(616.3)

(599.1)

(567.8)

(571.9)

(584.1)

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)

(1,080.9)

(1,038.2)

(995.4)

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)

(532.3)

(489.6)

(446.8)

Net Assets

 

 

382.4

436.3

197.6

278.5

302.7

329.6

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

128.4

143.6

86.8

140.0

180.7

195.7

Net Interest

 

 

(16.9)

(19.1)

(17.7)

(28.6)

(22.2)

(22.2)

Tax

 

 

(6.7)

(7.6)

(13.2)

(3.4)

(14.0)

(15.1)

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)

106.3

25.5

38.4

Opening core net debt/(cash)

 

 

423.9

492.7

500.0

552.0

490.5

500.4

IFRS16 lease capital repayments

 

 

0.0

0.0

0.0

(35.4)

(35.4)

(35.4)

Other

 

 

(10.5)

(0.0)

(1.1)

(9.4)

0.0

0.0

Closing core net debt/(cash)

 

 

438.7

500.0

552.0

490.5

500.4

497.4

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.

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.

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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.

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

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.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

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United States of America

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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 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.

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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