Renewi — Upgrades driven by Commercial waste division

Renewi (LSE: RWI)

Last close As at 22/04/2024

GBP5.68

5.00 (0.89%)

Market capitalisation

GBP454m

More on this equity

Research: Industrials

Renewi — Upgrades driven by Commercial waste division

A positive full-year trading update from Renewi pointed to a management FY21 (to March) EBIT expectation of €68m versus an existing consensus of around €55m. Our estimates are now in line with this, after increasing the Commercial division contribution. We have made no changes to other years at this stage, although there should be downward pressure on finance costs given the cash performance, but earnings still show some progression beyond FY21. Renewi has a well-explained strategy for increasing profitability over the next three years and remains very well positioned in its markets, which are at the centre of the circular economy.

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Industrials

Renewi

Upgrades driven by Commercial waste division

Q4 update

Industrial support services

17 March 2021

Price

48.6p

Market cap

£389m

€1.14/£

Core group ongoing net debt
(ex-PPP/PFI finance and IFRS 16 leases, €m) at end December 2020

323

Shares in issue

800.1m

Free float

98.8%

Code

RWI

Primary exchange

LSE

Secondary exchange

Euronext Amsterdam

Share price performance

%

1m

3m

12m

Abs

12.5

28.8

100.2

Rel (local)

11.4

23.0

47.0

52-week high/low

49.9p

18.1p

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

FY21 results

27 May

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

A positive full-year trading update from Renewi pointed to a management FY21 (to March) EBIT expectation of €68m versus an existing consensus of around €55m. Our estimates are now in line with this, after increasing the Commercial division contribution. We have made no changes to other years at this stage, although there should be downward pressure on finance costs given the cash performance, but earnings still show some progression beyond FY21. Renewi has a well-explained strategy for increasing profitability over the next three years and remains very well positioned in its markets, which are at the centre of the circular economy.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

03/19

1,780.7

63.1

6.0

1.7

9.2

3.0

03/20

1,775.4

54.3

5.4

0.5

11.0

0.9

03/21e

1,627.1

39.2

3.6

0.0

15.2

N/A

03/22e

1,691.3

46.4

4.3

0.0

12.8

N/A

03/23e

1,754.5

69.8

6.6

0.6

8.4

1.0

Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items. FY20- are on an IFRS 16 basis.

Favourable market trends in Commercial waste

At the time of the Q3 update (1 February) full-year expectations were affirmed and so far in Q4 an ongoing positive mix effect (higher levels of construction/bulky waste) and another step up in recyclate pricing (especially paper and steel) appear to be the primary trading drivers behind the raised guidance. With the caveat that March is the most important month of the quarter and is still to be booked, waste volumes in the first two months of Q4 have settled back slightly in the Netherlands (at 96% of prior year versus 98% in Q3) and firmed in Belgium (95% versus 92%). There are no other material changes to trading commentary, meaning that we infer ATM is still plugging away at achieving permits for its thermally treated soil but this has not translated to shipments yet.

Significant y-o-y net debt reduction confirmed

Expected year-end core net debt (pre IFRS 16) below €350m is a further positive step. Data points in FY21 to date have indicated significant reductions already, from c €460m at the end of FY20 (September €381m, December €323m). Management had flagged some natural increase from the December level but the extent is more subdued than anticipated. The absence of ATM soil shipments will have aided working capital performance but otherwise management appears to have been overly cautious previously. Note that the FY21 debt figures quoted will have benefitted from COVID-19-related tax payment deferrals of c €60m, which are to flow out over a three-year period, starting from October.

Valuation: Well placed

Renewi’s share price has now risen by c 7% YTD and c 23% on a 12-month view, backed by improving trading and cash flow updates. As a result, the closing year P/E and EV/EBITDA have increased to 15.2x and 5.5x respectively. While there is understandable caution generally about the economic growth outlook as the direct pandemic effects recede, Renewi is undoubtedly well positioned in its markets.

Exhibit 1: Financial summary

m

2018

2018

2019

2020

2021e

2022e

2023e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Sterling

Euros

Euros

Euros

Euros

Euros

Euros

Revenue

 

 

1,565.7

1,760.3

1,780.7

1,775.4

1,627.1

1,691.3

1,754.5

Cost of Sales

 

 

(1,276.9)

(1,419.2)

(1,470.4)

(1,467.5)

(1,350.5)

(1,399.6)

(1,447.5)

Gross Profit

 

 

288.8

341.1

310.3

307.9

276.6

291.7

307.0

EBITDA

 

 

156.9

176.3

179.7

167.1

149.3

159.0

182.9

Operating Profit (before GW and except.)

 

69.1

82.5

85.5

87.6

68.3

76.5

98.9

Net Interest

 

 

(14.2)

(15.0)

(14.4)

(18.5)

(17.5)

(18.0)

(17.0)

Other Finance

 

 

(5.1)

(7.1)

(8.4)

(15.7)

(12.1)

(12.1)

(12.1)

JV/Associates

 

 

2.3

2.6

0.4

0.9

0.5

0.0

0.0

Intangible Amortisation

 

 

(5.8)

(6.7)

(6.4)

(6.4)

(3.4)

(3.4)

(3.4)

Non Trading & Exceptional Items

 

 

(95.7)

(108.4)

(145.1)

(107.1)

(33.2)

(10.0)

(6.0)

Profit Before Tax (Edison norm)

 

 

52.1

63.0

63.1

54.3

39.2

46.4

69.8

Pension net finance costs

 

 

(0.6)

(0.7)

(0.6)

(0.2)

0.2

0.0

0.0

Profit Before Tax (Renewi norm)

 

 

51.5

62.3

62.5

54.1

39.4

46.4

69.8

Profit Before Tax (statutory)

 

 

(50.0)

(52.8)

(89.0)

(59.4)

2.8

33.0

60.4

Tax - headline

 

 

2.6

1.4

12.4

(1.1)

(6.8)

(11.1)

(16.8)

Profit After Tax (norm)

 

 

39.1

47.2

47.5

41.0

29.6

35.3

53.1

Profit After Tax

 

 

(47.4)

(51.5)

(76.6)

(60.5)

(4.0)

21.9

43.7

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)**

 

799.9

799.9

796.7

794.9

795.2

795.2

795.2

EPS - Edison norm (p/c) FD

 

 

4.9

5.9

6.0

5.4

3.6

4.3

6.6

EPS - Renewi norm (p/c) FD

 

 

4.8

5.4

6.0

5.4

3.7

4.3

6.6

EPS - (p/c)

 

 

(5.9)

(6.8)

(11.7)

(9.8)

(0.6)

2.7

5.4

Dividend per share (p/c)

 

 

3.05

3.46

1.68

0.52

0.00

0.00

0.56

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

18.4

19.4

17.4

17.3

17.0

17.3

17.5

EBITDA Margin (%)

 

 

10.0

10.0

10.1

9.4

9.2

9.4

10.4

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

 

4.4

4.7

4.8

4.9

4.2

4.5

5.6

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

1,456.3

1,669.2

1,439.6

1,616.8

1,557.4

1,558.8

1,563.7

Intangible Assets

 

 

606.3

699.3

605.6

610.1

607.3

599.8

592.3

Tangible Assets (inc RoU assets)

 

 

623.0

710.8

629.1

790.9

757.4

766.3

778.7

Investments

 

 

227.0

259.1

204.9

215.8

192.7

192.7

192.7

Current Assets

 

 

366.2

418.0

533.3

503.3

437.3

433.2

455.2

Stocks

 

 

23.3

26.6

26.0

20.7

19.0

19.7

20.4

Debtors

 

 

279.0

318.4

456.9

288.1

263.4

271.9

280.3

Cash

 

 

63.9

73.0

50.4

194.5

154.9

141.6

154.5

Current Liabilities

 

 

(545.8)

(631.0)

(758.3)

(635.2)

(626.3)

(628.4)

(637.8)

Creditors

 

 

(532.9)

(616.3)

(639.6)

(618.4)

(612.6)

(614.7)

(624.1)

Short term borrowings

 

 

(12.9)

(14.7)

(118.7)

(16.8)

(13.7)

(13.7)

(13.7)

Long Term Liabilities

 

 

(894.3)

(1,019.9)

(895.1)

(1,249.6)

(1,149.3)

(1,122.5)

(1,096.3)

Long term borrowings

 

 

(489.7)

(558.9)

(483.7)

(634.9)

(503.7)

(503.7)

(503.7)

Other long term liabilities

 

 

(404.6)

(461.0)

(411.4)

(614.7)

(645.6)

(618.8)

(592.6)

Net Assets

 

 

382.4

436.3

319.5

235.3

219.2

241.1

284.8

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

128.4

143.6

86.8

167.8

212.2

143.0

174.7

Net Interest

 

 

(16.9)

(19.1)

(17.7)

(27.0)

(23.9)

(24.4)

(23.4)

Tax

 

 

(6.7)

(7.6)

(13.2)

(10.1)

(10.5)

(9.6)

(11.1)

Net Capex

 

 

(81.2)

(92.3)

(99.4)

(73.4)

(54.9)

(87.3)

(92.3)

Acquisitions/disposals

 

 

(4.1)

(4.8)

22.7

81.0

2.2

0.0

0.0

Equity Financing

 

 

0.6

0.6

(2.7)

0.6

(0.1)

0.0

0.0

Dividends

 

 

(24.4)

(27.6)

(27.4)

(8.6)

0.0

0.0

0.0

Net Cash Flow

 

 

(4.3)

(7.3)

(50.9)

130.3

125.0

21.7

47.9

Opening core net debt/(cash)

 

 

423.9

492.7

500.0

552.0

457.2

362.5

375.8

IFRS16 lease capital repayments

 

 

0.0

0.0

0.0

(38.5)

(35.0)

(35.0)

(35.0)

Other

 

 

(10.5)

(0.0)

(1.1)

3.0

4.7

0.0

0.0

Closing core net debt/(cash)

 

 

438.7

500.0

552.0

457.2

362.5

375.8

362.9

Closing PPP/PFI non-recourse net debt

 

82.9

94.6

95.4

90.0

84.2

84.2

84.2

IFRS16 Lease finance

 

 

 

 

 

202.7

215.1

219.6

224.1

Source: Company data, Edison Investment Research. Note: *EPS for continuing businesses in FY20 was 5.1c and the 5.4c figure shown includes discontinued operations. **Excludes shares held by employee share trust.

Source: Sourec

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 2021 Edison Investment Research Limited (Edison).

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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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).

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

1185 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

Source: Sourec

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 2021 Edison Investment Research Limited (Edison).

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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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).

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

1185 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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