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Research: Industrials
Sustained strength in recyclate prices helped Renewi to deliver a firmer than expected end to FY22, resulting in a c 11% uplift to our estimates for the year. Appropriate actions have been taken to cover input cost risks going into FY23. We have made no further changes to estimates ahead of the FY22 results announcement, when prevailing recyclate prices and progress with the company’s strategic development programme will be keenly watched.
Written by
Renewi |
FY22 ends with raised guidance |
FY22 trading update |
Industrial support services |
25 March 2022 |
Share price performance
Business description
Next events
Analyst
Renewi is a research client of Edison Investment Research Limited |
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Sustained strength in recyclate prices helped Renewi to deliver a firmer than expected end to FY22, resulting in a c 11% uplift to our estimates for the year. Appropriate actions have been taken to cover input cost risks going into FY23. We have made no further changes to estimates ahead of the FY22 results announcement, when prevailing recyclate prices and progress with the company’s strategic development programme will be keenly watched.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/20 |
1,775.4 |
54.3 |
53.6 |
5.2 |
15.9 |
0.6 |
03/21 |
1,693.6 |
47.1 |
44.7 |
0.0 |
17.9 |
N/A |
03/22e |
1,812.6 |
104.0 |
96.5 |
0.0 |
8.3 |
N/A |
03/23e |
1,862.8 |
78.5 |
72.5 |
17.9 |
11.1 |
2.2 |
Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items.
Earnings ahead and net debt lower than expected
Renewi’s FY22 year-end update confirms that the trading year ended on a positive note with guidance raised ahead of previous expectations. The company has benefited from successive upgrades during the year resulting from sharp increases in recyclate prices. January and February were characterised by high recyclate prices and good cost control and implicitly more than offset some COVID-19 related volume softness; the year-on-year recyclate benefit now looks to be nearer to €50m at the EBIT level (versus a €40m estimate at the Q3 stage). Partly as a result of this, group year-end net debt appears to coming in lower at 1.5x EBITDA (we were previously projecting 1.7x, or €332m net debt on a pre-IFRS 16 basis).
Actions taken to cover cost inflation risks
We have increased our expected FY22 group PBT by €10m (c 11%), primarily in the Commercial Waste division, leaving subsequent years unchanged at this stage. In terms of the outlook, Renewi remains positive on medium- and long-term environmental drivers for the business and its own strategic growth programme. There is no fresh guidance for FY23, save for noting that existing estimates already factor in some reduction in the recyclate windfall benefit noted above for FY22, the majority of 2022 energy costs have been hedged and price increases already implemented are expected to cover cost inflation. We will revisit our estimates, including the net implications of new onerous contract and cloud software cost accounting (with positive and adverse EBIT impacts respectively), when FY22 results are released. Note that neither of these changes have any cash impact on the business.
Valuation: Rally from March lows
The share price has recovered strongly from its early March 534p low and is now only c 7% down YTD (versus -3% for the FTSE All Share Index). Consequently, our unchanged FY23 earnings multiples are now a P/E of 11.1x and EV/EBITDA of 5.5x. A stable volume and ongoing favourable recyclate price outlook when FY22 results are reported would be a further catalyst to extend the recent share price rally in our view.
Exhibit 1: Financial summary
€m |
2018 |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
|||
Year end March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
|
|
Euros |
Euros |
Euros |
Euros |
Euros |
Euros |
Euros |
|
Revenue |
|
|
1,760.3 |
1,780.7 |
1,775.4 |
1,693.6 |
1,812.6 |
1,862.8 |
1,928.2 |
|
Cost of Sales |
|
|
(1,419.2) |
(1,470.4) |
(1,467.5) |
(1,408.5) |
(1,489.3) |
(1,535.2) |
(1,584.3) |
|
Gross Profit |
|
|
341.1 |
310.3 |
307.9 |
285.1 |
323.3 |
327.6 |
343.9 |
|
EBITDA |
|
|
176.3 |
179.7 |
167.1 |
159.8 |
208.4 |
186.7 |
195.5 |
|
Operating Profit (before GW and except.) |
|
|
82.5 |
85.5 |
87.6 |
73.0 |
130.0 |
105.8 |
112.1 |
|
Net Interest |
|
|
(15.0) |
(14.4) |
(18.5) |
(14.0) |
(12.8) |
(13.8) |
(14.3) |
|
Other Finance |
|
|
(7.1) |
(8.4) |
(15.7) |
(13.5) |
(13.5) |
(13.5) |
(13.5) |
|
JV/Associates |
|
|
2.6 |
0.4 |
0.9 |
1.6 |
0.3 |
0.0 |
0.0 |
|
Intangible Amortisation |
|
|
(6.7) |
(6.4) |
(6.4) |
(3.3) |
(3.3) |
(3.3) |
(3.3) |
|
Non-Trading & Exceptional Items |
|
|
(108.4) |
(145.1) |
(107.1) |
(25.9) |
(13.0) |
(12.0) |
(6.0) |
|
Profit Before Tax (Edison norm) |
|
|
63.0 |
63.1 |
54.3 |
47.1 |
104.0 |
78.5 |
84.3 |
|
Pension net finance costs |
|
|
(0.7) |
(0.6) |
(0.2) |
0.3 |
(0.1) |
0.0 |
0.0 |
|
Profit Before Tax (Renewi norm) |
|
|
62.3 |
62.5 |
54.1 |
47.4 |
103.9 |
78.5 |
84.3 |
|
Profit Before Tax (statutory) |
|
|
(52.8) |
(89.0) |
(59.4) |
18.2 |
87.6 |
63.2 |
75.0 |
|
Tax - headline |
|
|
1.4 |
12.4 |
(1.1) |
(7.2) |
(21.0) |
(19.6) |
(21.1) |
|
Profit After Tax (norm) |
|
|
47.2 |
47.5 |
41.0 |
35.5 |
78.0 |
58.9 |
63.3 |
|
Profit After Tax |
|
|
(51.5) |
(76.6) |
(60.5) |
11.0 |
66.6 |
43.6 |
54.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
|
|
80.0 |
79.7 |
79.5 |
79.5 |
8.0 |
8.0 |
8.0 |
|
EPS - Edison norm (c) FD |
|
|
58.7 |
60.3 |
53.6 |
44.7 |
96.5 |
72.5 |
77.9 |
|
EPS - Renewi norm (c) FD |
|
|
54.0 |
59.7 |
53.5 |
45.0 |
96.4 |
72.5 |
77.9 |
|
EPS - (c) |
|
|
(67.8) |
(116.5) |
(98.0) |
13.9 |
82.6 |
53.6 |
66.6 |
|
Dividend per share (c) |
|
|
34.6 |
16.8 |
5.2 |
0.0 |
0.0 |
17.9 |
20.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
19.4 |
17.4 |
17.3 |
16.8 |
17.8 |
17.6 |
17.8 |
|
EBITDA Margin (%) |
|
|
10.0 |
10.1 |
9.4 |
9.4 |
11.5 |
10.0 |
10.1 |
|
Operating Margin (before GW and except.) (%) |
|
|
4.7 |
4.8 |
4.9 |
4.3 |
7.2 |
5.7 |
5.8 |
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
1,669.2 |
1,439.6 |
1,616.8 |
1,617.8 |
1,601.2 |
1,644.0 |
1,661.3 |
|
Intangible Assets |
|
|
699.3 |
605.6 |
610.1 |
602.2 |
599.7 |
592.3 |
584.9 |
|
Tangible Assets (inc RoU assets) |
|
|
710.8 |
629.1 |
790.9 |
794.5 |
794.7 |
844.9 |
869.6 |
|
Investments |
|
|
259.1 |
204.9 |
215.8 |
221.1 |
206.8 |
206.8 |
206.8 |
|
Current Assets |
|
|
418.0 |
533.3 |
503.3 |
338.4 |
425.3 |
411.5 |
438.5 |
|
Stocks |
|
|
26.6 |
26.0 |
20.7 |
20.6 |
21.8 |
22.5 |
23.2 |
|
Debtors |
|
|
318.4 |
456.9 |
288.1 |
266.3 |
305.0 |
311.6 |
319.7 |
|
Cash |
|
|
73.0 |
50.4 |
194.5 |
51.5 |
98.5 |
77.4 |
95.7 |
|
Current Liabilities |
|
|
(631.0) |
(758.3) |
(635.2) |
(644.6) |
(736.6) |
(732.6) |
(736.7) |
|
Creditors |
|
|
(616.3) |
(639.6) |
(618.4) |
(632.3) |
(626.4) |
(622.4) |
(626.5) |
|
Short term borrowings |
|
|
(14.7) |
(118.7) |
(16.8) |
(12.3) |
(110.2) |
(110.2) |
(110.2) |
|
Long Term Liabilities |
|
|
(1,019.9) |
(895.1) |
(1,249.6) |
(1,068.6) |
(966.9) |
(961.0) |
(962.0) |
|
Long term borrowings |
|
|
(558.9) |
(483.7) |
(634.9) |
(382.8) |
(305.0) |
(325.0) |
(345.0) |
|
Other long-term liabilities |
|
|
(461.0) |
(411.4) |
(614.7) |
(685.8) |
(661.9) |
(636.0) |
(617.0) |
|
Net Assets |
|
|
436.3 |
319.5 |
235.3 |
243.1 |
323.0 |
361.8 |
401.1 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
143.6 |
86.8 |
167.8 |
258.2 |
192.4 |
177.6 |
198.0 |
|
Net Interest |
|
|
(19.1) |
(17.7) |
(27.0) |
(20.6) |
(20.0) |
(21.0) |
(21.5) |
|
Tax |
|
|
(7.6) |
(13.2) |
(10.1) |
(14.8) |
(13.8) |
(26.0) |
(19.6) |
|
Net Capex |
|
|
(92.3) |
(99.4) |
(73.4) |
(62.3) |
(95.9) |
(127.0) |
(104.0) |
|
Acquisitions/disposals |
|
|
(4.8) |
22.7 |
81.0 |
2.4 |
0.8 |
0.0 |
0.0 |
|
Equity Financing |
|
|
0.6 |
(2.7) |
0.6 |
0.4 |
1.2 |
0.0 |
0.0 |
|
Dividends |
|
|
(27.6) |
(27.4) |
(8.6) |
0.0 |
0.0 |
(4.7) |
(14.7) |
|
Net Cash Flow |
|
|
(7.3) |
(50.9) |
130.3 |
163.3 |
64.7 |
(1.1) |
38.3 |
|
Opening core net debt/(cash) |
|
|
492.7 |
500.0 |
552.0 |
457.2 |
343.6 |
316.7 |
357.8 |
|
IFRS 16 lease capital repayments |
|
|
0.0 |
0.0 |
(38.5) |
(40.4) |
(40.0) |
(40.0) |
(40.0) |
|
Other |
|
|
(0.0) |
(1.1) |
3.0 |
(9.3) |
2.2 |
0.0 |
0.0 |
|
Closing core net debt/(cash) |
|
|
500.0 |
552.0 |
457.2 |
343.6 |
316.7 |
357.8 |
359.5 |
|
Closing PPP/PFI non-recourse net debt |
|
|
94.6 |
95.4 |
90.0 |
87.8 |
79.6 |
79.6 |
79.6 |
|
IFRS 16 Lease finance |
|
|
|
|
202.7 |
247.8 |
245.7 |
250.7 |
255.7 |
|
Source: Company data, Edison Investment Research. Note: *EPS for continuing businesses in FY20 was 51c and the 54c figure shown includes discontinued operations. Please note that the company’s shares underwent a 10:1 consolidation on 19 July 2021.
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Research: Consumer
Games Workshop Group’s (GAW’s) Q322 trading update (to the end of February), which indicates that trading is in line with expectations, is reassuring given the incremental cost pressures (including freight) highlighted in the H122 results. We believe the company’s cash position is better than we expected given the declaration of a further dividend (70p/share), taking the cumulative (financial) year to date total to 235p/share. We make no changes to our forecasts beyond increasing our FY22 dividend estimate to 235p/share, a flat dividend versus FY21. The share price weakness means that the P/E multiples for FY22e (19.3x) and FY23e (18.7x) are below more recent non-COVID affected peak multiples.