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Research: Industrials
Selling the Canadian Municipal operations is consistent with Renewi’s strategy of simplifying its business portfolio and deleveraging the balance sheet. The completion of this transaction and possibly one other that has been flagged will allow investors to focus on the company’s positions, operational improvements and growth aspirations for its core markets. Progress here is likely to be reflected in a re-rating in our view.
Written by
Renewi |
Exit from Canada announced |
Disposal |
Industrial support services |
19 June 2019 |
Share price performance
Business description
Next event
Analyst
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Selling the Canadian Municipal operations is consistent with Renewi’s strategy of simplifying its business portfolio and deleveraging the balance sheet. The completion of this transaction and possibly one other that has been flagged will allow investors to focus on the company’s positions, operational improvements and growth aspirations for its core markets. Progress here is likely to be reflected in a re-rating in our view.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/18 |
1,760.3 |
63.0 |
5.9 |
3.5 |
6.9 |
8.6 |
03/19 |
1,780.7 |
63.1 |
6.0 |
1.7 |
6.7 |
4.2 |
03/20e |
1,833.5 |
49.7 |
4.7 |
1.7 |
8.6 |
4.2 |
03/21e |
1,890.3 |
71.5 |
6.8 |
2.7 |
5.9 |
6.8 |
Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items. Canada Municipal excluded.
Bringing greater focus on core operations
The prospective disposal of the Canada Municipal operations was referenced by management at the end of FY19. The 17 June announcement represents a swift crystallisation of this intention with the proposed sale to Convent Capital, subject to change of control approval from the customer base. This move provides a clean exit from Canada (where the former Shanks Group had operated since 2007) and the Municipal division now solely comprises UK operations. (Note that this was already effectively the case in our estimates given that Canada was classified as discontinued with the FY19 results.) Separately, we assume that other discussions are still progressing with regard to Reym (part of the Hazardous Waste division), although no further update was provided on this.
Favourable leverage effect
Subject to expected completion by the end of September, the terms include initial consideration of c €56m in cash (and we believe that c €4m finance leases are also attached to the operations). On this basis, Renewi flags an associated disposal loss of c €12m; this could effectively be offset by potential deferred consideration and other recoveries of the same amount, which are substantially dependent on the new owner securing additional project financing. Allowing for a small capex reduction also, our end-FY20 core net debt projection (excluding deferred receipts) is now c €527m, equivalent to c 3x EBITDA in the year. The transaction brings a small benefit to earnings estimates via a reduced P&L net interest charge
Valuation: Newsflow driving upside
Renewi’s share price has rallied well from the lows seen in March and is marginally ahead ytd, although it is some way from levels seen a year ago. Incorporating modestly higher earnings estimates, Renewi’s P/E rating is at similar levels to our post-FY19 results note at 8.6x, while the EV/EBITDA (adjusted for pensions cash) has reduced to 5.0x. The initial share price response to the disposal announcement was favourable; successfully concluding this disposal and that of Reym, together with robust trading newsflow, should support further improvement in the share price in our view.
Exhibit 1: Financial summary
m's |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2018 |
2019 |
2020e |
2021e |
2022e |
|||||
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 |
1,833.5 |
1,890.3 |
1,927.1 |
|||
Cost of Sales |
|
|
(622.9) |
(511.6) |
(528.3) |
(506.1) |
(517.8) |
(653.3) |
(1,276.9) |
(1,419.2) |
(1,470.4) |
(1,501.6) |
(1,548.2) |
(1,578.3) |
|||
Gross Profit |
|
|
127.2 |
103.0 |
105.1 |
95.3 |
97.0 |
125.9 |
288.8 |
341.1 |
310.3 |
331.9 |
342.1 |
348.8 |
|||
EBITDA |
|
|
105.0 |
88.4 |
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.) |
53.4 |
44.9 |
45.6 |
34.3 |
33.4 |
36.5 |
69.1 |
82.5 |
85.5 |
78.2 |
97.1 |
102.1 |
|||||
Net Interest |
|
|
(10.8) |
(10.8) |
(12.6) |
(11.4) |
(11.2) |
(10.3) |
(14.2) |
(15.0) |
(14.4) |
(19.5) |
(16.5) |
(16.0) |
|||
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 & Exceptional Items |
|
|
(2.9) |
(37.8) |
(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) |
|
36.3 |
30.5 |
30.4 |
22.2 |
21.6 |
26.0 |
52.1 |
63.0 |
63.1 |
49.7 |
71.5 |
77.1 |
||||
Pension net finance costs |
|
|
0.2 |
(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 |
49.7 |
71.5 |
76.5 |
||||
Profit Before Tax (statutory) |
|
|
29.9 |
(10.1) |
7.6 |
(20.5) |
(2.5) |
(61.4) |
(50.0) |
(52.8) |
(89.0) |
5.7 |
64.5 |
70.1 |
|||
Tax - headline |
|
|
(4.2) |
(1.1) |
(5.8) |
2.3 |
(1.5) |
0.5 |
2.6 |
1.4 |
12.4 |
(12.2) |
(17.2) |
(18.5) |
|||
Profit After Tax (norm) |
|
|
26.6 |
22.8 |
23.2 |
20.5 |
19.3 |
20.1 |
39.1 |
47.2 |
47.5 |
37.5 |
54.4 |
58.6 |
|||
Profit After Tax |
|
|
25.7 |
(11.2) |
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) |
|
448.0 |
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 |
4.7 |
6.8 |
7.3 |
|||
EPS - Renewi norm (p/c) FD |
|
|
6.0 |
5.0 |
5.1 |
4.4 |
4.2 |
3.7 |
4.8 |
5.4 |
6.0 |
4.6 |
6.7 |
7.3 |
|||
EPS - (p/c) |
|
|
5.7 |
(7.9) |
(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 |
3.05 |
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 |
9.5 |
10.3 |
10.4 |
|||
Operating Margin (before GW and except.) (%) |
7.1 |
7.3 |
7.2 |
5.7 |
5.4 |
4.7 |
4.4 |
4.7 |
4.8 |
4.3 |
5.1 |
5.3 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
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 |
1,450.1 |
1,458.8 |
1,466.0 |
|||
Intangible Assets |
|
|
271.4 |
251.8 |
211.1 |
173.8 |
194.5 |
603.3 |
606.3 |
699.3 |
605.6 |
596.9 |
585.9 |
574.9 |
|||
Tangible Assets |
|
|
390.9 |
375.3 |
322.7 |
282.9 |
297.0 |
587.4 |
623.0 |
710.8 |
629.1 |
648.3 |
668.0 |
686.2 |
|||
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 |
460.4 |
483.6 |
487.5 |
|||
Stocks |
|
|
10.5 |
11.0 |
9.4 |
6.9 |
6.8 |
19.9 |
23.3 |
26.6 |
26.0 |
26.6 |
27.4 |
27.9 |
|||
Debtors |
|
|
163.3 |
160.9 |
151.5 |
156.3 |
135.5 |
253.4 |
279.0 |
318.4 |
456.9 |
383.5 |
390.5 |
395.4 |
|||
Cash |
|
|
59.8 |
75.4 |
104.2 |
60.8 |
34.7 |
74.9 |
63.9 |
73.0 |
50.4 |
50.4 |
65.7 |
64.1 |
|||
Current Liabilities |
|
|
(238.7) |
(248.9) |
(229.6) |
(277.4) |
(227.2) |
(483.2) |
(545.8) |
(631.0) |
(758.3) |
(717.0) |
(717.7) |
(694.3) |
|||
Creditors |
|
|
(226.5) |
(230.7) |
(226.3) |
(202.4) |
(224.8) |
(466.8) |
(532.9) |
(616.3) |
(639.6) |
(623.8) |
(624.5) |
(631.1) |
|||
Short term borrowings |
|
|
(12.2) |
(18.2) |
(3.3) |
(75.0) |
(2.4) |
(16.4) |
(12.9) |
(14.7) |
(118.7) |
(93.2) |
(93.2) |
(63.2) |
|||
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 |
299.6 |
331.9 |
367.6 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Operating Cash Flow |
|
|
109.9 |
67.7 |
78.6 |
55.8 |
72.2 |
27.9 |
128.4 |
143.6 |
86.8 |
123.2 |
176.3 |
191.2 |
|||
Net Interest |
|
|
(13.4) |
(11.5) |
(13.2) |
(12.8) |
(12.8) |
(19.0) |
(16.9) |
(19.1) |
(17.7) |
(19.5) |
(16.5) |
(16.0) |
|||
Tax |
|
|
(7.1) |
1.9 |
(1.6) |
(5.7) |
(4.8) |
(5.3) |
(6.7) |
(7.6) |
(13.2) |
(12.2) |
(17.2) |
(18.5) |
|||
Net Capex |
|
|
(74.8) |
(50.1) |
(27.1) |
(37.2) |
(25.8) |
(41.2) |
(81.2) |
(92.3) |
(99.4) |
(112.6) |
(112.3) |
(112.3) |
|||
Acquisitions/disposals |
|
|
(19.6) |
(59.2) |
(54.1) |
(67.3) |
18.2 |
39.5 |
(4.1) |
(4.8) |
22.7 |
56.0 |
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) |
21.5 |
15.3 |
28.4 |
|||
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 |
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 |
0.0 |
0.0 |
|||
Other |
|
|
19.5 |
93.4 |
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) |
|
|
206.2 |
177.3 |
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 |
|
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
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Jupiter US Smaller Companies (JUS) is continuing to deliver improved investment performance following a tightening up of its investment process in October 2017. The trust has outperformed its small-cap equity benchmark over the last one and three years in both NAV and share price terms. Increased stock market volatility in recent months has presented manager Robert Siddles with an increasing array of attractive investment opportunities across a range of industries; although this has increased portfolio turnover, the manager continues to invest with a long-term view, aiming to generate capital growth while preserving capital during periods of stock market weakness.