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Research: Industrials
The burden of the UK Municipal businesses has now been cut loose. This leaves a focused waste management and recycling group, for which the European legislative environment is clearly positive. The key is translating this, along with internal investment, into management’s organic growth target of at least 5%. Along with planned margin enhancement from cost actions and higher value-added recyclates, this would drive earnings and value creation.
Renewi |
Now a pure-play European recycler |
Interim results |
Industrial support services |
13 November 2024 |
Share price performance
Business description
Next events
Analyst
Renewi is a research client of Edison Investment Research Limited |
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The burden of the UK Municipal businesses has now been cut loose. This leaves a focused waste management and recycling group, for which the European legislative environment is clearly positive. The key is translating this, along with internal investment, into management’s organic growth target of at least 5%. Along with planned margin enhancement from cost actions and higher value-added recyclates, this would drive earnings and value creation.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/23 |
1,704 |
105.2 |
89 |
0.0 |
7.9 |
N/A |
03/24 |
1,689 |
68.0 |
61 |
5.0 |
11.5 |
0.7 |
03/25e |
1,783 |
75.1 |
64 |
10.0 |
10.9 |
1.4 |
03/26e |
1,858 |
89.9 |
78 |
12.5 |
9.1 |
1.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Interim results in line
H1 revenue was up 4% to €874.5m, and underlying EBIT from continuing operations was up 9% to €53.2m with an operating margin of 6.1% (H124: 5.8%). Underlying PBT was up 3.6% to €31.8m, with EPS up 5.2% to 28c. Free cash flow improved to €20.3m, reducing core net debt (excluding finance leases) to €357.7m (FY24: €368.1m), with core net debt/EBITDA of 2.04x (pro forma 2.85x post disposal of the UK Municipal businesses). In Commercial Waste, sales grew by 3% despite continuing subdued volumes, with price increases implemented to offset additional costs including reduced incinerator capacity. EBIT declined by 8% due to reduced one-off benefits from the previous year and some softening in recyclate prices. Mineralz & Water reported a strong profit performance, with margins of 10.0% up from 1.7% benefiting from improved throughput at ATM and Water, lower utility costs and the exit of loss-making operations at Tisselt and Zweekhorst. In Specialities, revenues were up 19% and EBIT up 10%, benefiting from higher volume and pricing but incurring some higher costs (eg the price of acquiring incoming glass), which meant a slight decline in margins.
Outlook and forecasts
Management guidance for FY25 is unchanged. We have adjusted our forecasts, primarily at the financing level, to reflect the disposal of the UK Municipal businesses, which occurred a quarter earlier than we had anticipated, along with a marginal reduction in EBIT, with softer Commercial largely offset by better Mineralz & Water. We have reduced our FY25 PBT estimate by 8.0% from €81.6m to €75.1m and EPS by 8.3% from 70c to 64c, and reduced FY26 PBT by 2.6% from €92.3m to €89.9m and EPS by 2.7% from 80c to 78c.
Valuation: Upside remains
We have updated our valuation to reflect the change in forecasts and exit of the UK Municipal businesses. Our discounted cash flow (DCF) valuation comes to 877p/share, up from 849p/share, as we see the exit of UK Municipal reducing the risk profile and hence the cost of capital (using 9.5% vs 10.0%). Our peer-based valuation is virtually unchanged at 844p (from 845p).
Interim results
Revenue was up 4% to €874.5m in H1, and underlying EBIT from continuing operations was up 9% to €53.2m with an operating margin of 6.1% (vs 5.8% in H124). Free cash flow improved to €20.3m, with core net debt reducing to €357.7m (March 2024: €368.1m) and core net debt/EBITDA of 2.04x (pro forma 2.85x post the disposal of the UK Municipal businesses).
Exhibit 1: Summary financials
€m |
H124 |
H125 |
Change |
Turnover |
844.3 |
874.5 |
3.6% |
Operating margin |
5.8% |
6.1% |
3bp |
Underlying EBIT |
49.0 |
53.2 |
8.6% |
Associates |
0.1 |
(0.2) |
|
Exceptionals |
6.3 |
(10.3) |
|
Reported operating profit |
55.4 |
42.7 |
|
Finance costs |
(18.4) |
(21.2) |
|
PBT reported |
37.0 |
21.5 |
|
PBT before exceptionals |
30.7 |
31.8 |
3.6% |
Underlying EPS (c) |
27 |
28 |
5.2% |
FY24 |
H125 |
Change |
|
Underlying core net cash/(debt) |
(368) |
(358) |
2.9% |
Total net cash/(debt) including finance leases |
(616) |
(595) |
3.5% |
Source: Renewi
Commercial Waste division
Commercial Waste sales were up 3% despite continuing subdued volumes across certain markets, with price increases implemented to offset additional costs, including higher incinerator costs due to capacity shortages. EBIT declined by 8% due to a reduction in favourable one-off items of c €5m from the previous year and lower recyclate prices against the previous year (highlighted in the outbound revenue). Most notable was the reduction in the margin in Belgium, which is being addressed by cost actions.
Exhibit 2: Commercial Waste operating results
€m |
H124 |
H224 |
H125 |
|
Netherlands |
Sales |
457.3 |
454.2 |
466.5 |
Operating margin |
5.6% |
6.0% |
5.7% |
|
Operating profit |
25.8 |
27.1 |
26.5 |
|
Belgium |
Sales |
237.5 |
238.7 |
245.7 |
Operating margin |
10.3% |
8.8% |
8.0% |
|
Operating profit |
24.5 |
21.1 |
19.7 |
|
Division |
Inbound |
562.2 |
566.8 |
579.9 |
Outbound |
87.1 |
77.9 |
88.1 |
|
On-site |
32.3 |
34.6 |
32 |
|
Other |
11.7 |
12.1 |
10.7 |
|
Turnover |
693.3 |
691.4 |
710.7 |
|
Operating margin |
7.3% |
7.0% |
6.5% |
|
Operating profit |
50.3 |
48.2 |
46.2 |
Source: Renewi
H224 will benefit from the additional price increases put in place in October. Further out, consolidating the management teams should provide cost and operational benefits. The recent fortunes of the local construction sector, particularly the demolition sector, have been key for the Dutch business. Official statistics would seem to suggest a market recovery, providing some optimism into calendar 2025.
|
Exhibit 3: Demolition activity in the Netherlands (change year-on-year) |
Exhibit 4: Building projects started in the Netherlands (€m) |
|
|
|
Source: Centraal Bureau voor de Statistiek |
Source: Centraal Bureau voor de Statistiek |
|
Exhibit 3: Demolition activity in the Netherlands (change year-on-year) |
|
|
Source: Centraal Bureau voor de Statistiek |
|
Exhibit 4: Building projects started in the Netherlands (€m) |
|
|
Source: Centraal Bureau voor de Statistiek |
Mineralz & Water
Mineralz & Water reported a flat top line but a strong profit performance, with an operating margin of 10.0%, up from 1.7% in H124, benefiting from improved throughput at ATM and Water with lower utility costs and the exit of loss-making bottom ash cleaning operations (Tisselt and Zweekhorst sites shut). The ATM soil issues continue to be addressed, with stocks down from 453 tonnes to 351 tonnes, which not only reduces this historical liability but also improves ongoing operational efficiencies at the site.
Exhibit 5: Mineralz & Water operating results
€m |
H122 |
H222 |
H123 |
H223 |
H124 |
H224 |
H125 |
Sales |
93.6 |
100.3 |
93.3 |
97.6 |
88.4 |
93.2 |
87.9 |
Operating margin |
4.3% |
1.8% |
2.8% |
-2.2% |
1.7% |
8.7% |
10.0% |
Operating profit |
4.0 |
1.8 |
2.6 |
(2.1) |
1.5 |
8.1 |
8.8 |
Source: Renewi
Specialities
Specialities revenue was up 19% and EBIT up 10%, benefiting from higher volumes and pricing but incurring some higher costs (eg the price of acquiring scrap glass) and with softer recyclate prices leading to a slight decline in margins. Coolrec (electrical waste) continues to expand into larger items, while Maltha’s (glass waste) development of an automated sorting line is reducing costs and will be rolled out across the network.
Exhibit 6: Specialities operating results
€m |
H124 |
H224 |
H125 |
Sales |
85.9 |
89.3 |
102.0 |
Operating margin |
10.0% |
8.6% |
9.3% |
Operating profit |
8.6 |
7.7 |
9.5 |
Source: Renewi
Exceptionals
There were no new significant exceptionals. The primary impact was the change in discount rates on provisions and the amortisation of acquisition-related intangibles.
Exhibit 7: Exceptionals
€m |
H124 |
H125 |
Merger & acquisition activity |
0.3 |
(1.0) |
Long-term provisions |
10.0 |
(4.1) |
Restructuring activity |
(1.0) |
(2.1) |
Amortisation of acquisition-related intangibles |
(3.0) |
(3.1) |
Total |
6.3 |
(10.3) |
Source: Renewi
Discontinued operations
The disposal of the UK Municipal operations was completed in October. The results are therefore reported after tax, as highlighted below. The further net loss once more highlights the reason for management’s decision to exit these operations.
Exhibit 8: Post tax H125 results from discontinued operations (€m)
Underlying |
1.2 |
Exceptional |
(6.3) |
Net profit/(loss) |
(5.1) |
Source: Renewi
Cash flow and financial position
Core net debt reduced from €368m at end FY24 to €357m at end H125, including payment of the FY24 final dividend. Note the €38m cash on legacy items in Exhibit 9, which will reduce as a result of the disposal of UK Municipal and now that the COVID-19 deferred tax repayments have been fully remitted. The absence of these supports management’s expectation for positive and increasing cash generation. Note that the disposal of UK Municipal will add c €150m to debt in the second half.
|
Exhibit 9: Cash flow bridge (€m) |
|
|
Source: Renewi |
Outlook
Management expectations for FY25 underlying EBIT from continuing operations are unchanged. Management comments that ‘while the near-term macro environment is not without challenges, we expect our full year results to be in line with market expectations and we remain confident progressing towards our medium-term targets’. The medium-term target is for revenue growth of more than 5% and an operating margin of 8–10%.
Forecasts
Our changes to EBIT reflect a reduction in expected margins in the Commercial business, primarily due to reduced one-offs, partially offset by a better-than-expected performance in Mineralz & Water. We are also factoring in an increase in the financing charge for FY25 as the UK Municipal disposal was completed ahead of our expectations, along with a reduction in the FY26 finance charge as cash generation is ahead of our previous forecasts.
Exhibit 10: Forecast changes
FY25e |
FY26e |
|||||
€m |
Old |
New |
Change |
Old |
New |
Change |
Revenues |
1,751 |
1,783 |
1.8% |
1,825 |
1,858 |
1.8% |
EBITDA |
253 |
252 |
-0.4% |
281 |
276 |
-1.8% |
Normalised operating profit |
122 |
120 |
-1.5% |
146 |
138 |
-5.1% |
Normalised operating profit margin |
7.0% |
6.7% |
-0.2% |
8.0% |
7.5% |
-0.5% |
Normalised PBT |
82 |
75 |
-8.0% |
92 |
90 |
-2.6% |
Normalised basic EPS (c) |
70 |
64 |
-8.7% |
80 |
78 |
-2.7% |
Dividend per share (c) |
10.0 |
10.0 |
0.0% |
12.5 |
12.5 |
0.0% |
Closing core net debt/(cash) |
541 |
545 |
0.8% |
527 |
530 |
0.8% |
Source: Renewi
Valuation
We continue to use a dual approach to valuation: a DCF and a peer group-based methodology.
DCF
Using a WACC of 9.5% and terminal growth of 2%, our DCF comes to 877p/share, up from 849p/share. We have reduced our WACC assumption from 10.0% to 9.5% due to the lower risk given the exit of the UK Municipal operations.
Exhibit 11: DCF valuation (p/share)
Terminal growth rate |
|||||
WACC |
0.0% |
1.0% |
2.0% |
3.0% |
4.0% |
11.0% |
470 |
524 |
590 |
673 |
780 |
10.5% |
534 |
597 |
674 |
772 |
900 |
10.0% |
606 |
678 |
769 |
885 |
1,040 |
9.5% |
686 |
770 |
877 |
1,016 |
1,206 |
9.0% |
774 |
873 |
1,000 |
1,169 |
1,406 |
8.5% |
874 |
991 |
1,143 |
1,350 |
1,650 |
8.0% |
987 |
1,125 |
1,310 |
1,569 |
1,956 |
Source: Edison Investment Research
Peer based valuation
Our peer group includes Befesa, Cabka, Groupe Pizzorno, Lassila & Tikanoja, Mo-Bruk, Seche and Veolia, and we use calendarised Renewi numbers. Our average peer-based valuation comes to 844p/share.
Exhibit 12: Peer-based valuation
EV/EBIT (x) |
EV/EBITDA (x) |
P/E (x) |
||||
2024e |
2025e |
2024e |
2025e |
2024e |
2025e |
|
Rating (x) |
12.1 |
9.9 |
6.0 |
5.3 |
14.5 |
11.5 |
Renewi forecast EBIT (€m), EBITDA (€m), EPS (c) |
116 |
134 |
248 |
270 |
63 |
74 |
Valuation (€m) |
1,409 |
1,325 |
1,475 |
1,433 |
||
Provisions (€m) |
(30) |
(30) |
(30) |
(30) |
||
Debt (€m) – adjusted for UK Municipal |
(518) |
(545) |
(518) |
(545) |
||
Pension deficit (€m) |
(13) |
(13) |
(13) |
(13) |
||
Market cap (€m) |
848 |
738 |
914 |
845 |
||
Number of shares (m) |
80.7 |
80.7 |
80.7 |
80.7 |
||
Value per share (c) |
1,051 |
914 |
1,133 |
1,047 |
920 |
853 |
Value per share (p) |
875 |
762 |
944 |
873 |
767 |
711 |
Source: LSEG Data & Analytics, Edison Investment Research. Note: Prices as at 12 November 2024. Renewi forecasts are calendarised.
Exhibit 13: Financial summary
€m |
2022 |
2023 |
2024 |
2025e |
2026e |
|
Year to March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|
INCOME STATEMENT |
||||||
Revenue |
|
1,869.2 |
1,703.9 |
1,689.2 |
1,782.5 |
1,858.4 |
Cost of Sales |
(1,512.5) |
(1,385.3) |
(1,351.2) |
(1,443.9) |
(1,505.3) |
|
Gross Profit |
356.7 |
318.6 |
338.0 |
338.7 |
353.1 |
|
EBITDA |
|
261.5 |
255.8 |
235.5 |
251.7 |
275.6 |
Operating profit (before amort. and excepts.) |
|
133.6 |
131.7 |
105.5 |
120.1 |
138.5 |
Amortisation of acquired intangibles |
(3.4) |
(5.0) |
(6.1) |
(6.0) |
(6.0) |
|
Exceptionals |
(6.2) |
14.8 |
(1.8) |
0.0 |
0.0 |
|
Reported operating profit |
124.0 |
141.5 |
97.6 |
114.1 |
132.5 |
|
Net Interest |
(28.8) |
(26.8) |
(38.0) |
(45.0) |
(49.0) |
|
Joint ventures & associates (post tax) |
0.5 |
0.3 |
0.5 |
0.0 |
0.5 |
|
Profit Before Tax (norm) |
|
105.3 |
105.2 |
68.0 |
75.1 |
89.9 |
Profit Before Tax (reported) |
|
95.7 |
115.0 |
60.1 |
69.1 |
83.9 |
Reported tax |
(20.3) |
(29.0) |
(14.9) |
(17.3) |
(20.9) |
|
Profit After Tax (norm) |
78.8 |
74.4 |
48.4 |
54.8 |
65.8 |
|
Profit After Tax (reported) |
75.4 |
86.0 |
45.2 |
51.8 |
63.1 |
|
Minority interests |
(0.9) |
(3.7) |
(3.2) |
(3.0) |
(3.0) |
|
Discontinued operations |
0.0 |
(19.4) |
(76.1) |
0.0 |
0.0 |
|
Net income (normalised) |
77.9 |
70.7 |
45.2 |
51.8 |
62.8 |
|
Average number of shares outstanding (m) |
79.7 |
80.3 |
80.0 |
80.7 |
81.0 |
|
EPS - normalised (c) |
|
98 |
89 |
61 |
64 |
78 |
EPS - normalised fully diluted (c) |
|
98 |
89 |
61 |
64 |
77 |
EPS - basic reported (c) |
|
93 |
79 |
(43) |
61 |
74 |
Dividend (c) |
0.0 |
0.0 |
5.0 |
10.0 |
12.5 |
|
EBITDA Margin (%) |
14.0 |
15.0 |
13.9 |
14.1 |
14.8 |
|
Normalised Operating Margin (%) |
7.1 |
7.7 |
6.2 |
6.7 |
7.5 |
|
BALANCE SHEET |
||||||
Fixed Assets |
|
1,566 |
1,686 |
1,562 |
1,566 |
1,564 |
Intangible Assets |
593 |
636 |
634 |
628 |
623 |
|
Tangible and Right-of-use Assets |
767 |
871 |
873 |
882 |
885 |
|
Investments & other |
206 |
179 |
56 |
56 |
56 |
|
Current Assets |
|
386 |
399 |
494 |
492 |
510 |
Stocks |
23 |
25 |
23 |
24 |
25 |
|
Debtors |
269 |
290 |
246 |
262 |
279 |
|
Cash & cash equivalents |
64 |
63 |
79 |
60 |
60 |
|
Other |
31 |
22 |
146 |
146 |
146 |
|
Current Liabilities |
|
(733) |
(665) |
(637) |
(633) |
(649) |
Creditors |
(528) |
(522) |
(474) |
(491) |
(507) |
|
Tax and social security |
(24) |
(31) |
(21) |
(21) |
(21) |
|
Short term borrowings |
(149) |
(67) |
(121) |
(100) |
(100) |
|
Other |
(31) |
(46) |
(22) |
(22) |
(22) |
|
Long Term Liabilities |
|
(881) |
(1,073) |
(1,106) |
(1,261) |
(1,241) |
Long term borrowings |
(519) |
(682) |
(574) |
(752) |
(738) |
|
Other long term liabilities |
(362) |
(391) |
(531) |
(508) |
(503) |
|
Net Assets |
|
338 |
347 |
314 |
165 |
183 |
Minority interests |
(7) |
(10) |
(13) |
(13) |
(13) |
|
Shareholders' equity |
|
331 |
337 |
301 |
152 |
170 |
CASH FLOW |
||||||
Operating Cash Flow |
261.5 |
255.8 |
235.5 |
251.7 |
275.6 |
|
Working capital |
(59.9) |
(23.8) |
4.8 |
(0.6) |
(1.1) |
|
Exceptional & other |
(17.1) |
(23.6) |
(35.3) |
(35.3) |
(17.3) |
|
Tax |
(7.6) |
(21.2) |
(36.3) |
(20.3) |
(24.1) |
|
Net operating cash flow |
|
176.9 |
187.2 |
168.7 |
195.6 |
233.1 |
Capex |
(77.3) |
(118.1) |
(79.2) |
(105.0) |
(105.0) |
|
Acquisitions/disposals |
(3.2) |
(60.7) |
0.2 |
0.0 |
0.0 |
|
Net interest |
(17.2) |
(21.3) |
(31.4) |
(45.3) |
(49.3) |
|
Equity financing |
(1.6) |
(4.7) |
(1.0) |
0.0 |
0.0 |
|
Dividends |
0.0 |
0.0 |
0.0 |
(6.5) |
(9.0) |
|
Net Cash Flow |
77.6 |
(17.6) |
57.3 |
38.8 |
69.8 |
|
Opening net debt/(cash) |
|
343.7 |
303.1 |
370.7 |
368.2 |
544.7 |
FX |
7.6 |
(0.2) |
(1.7) |
0.0 |
0.0 |
|
Other non-cash movements |
(44.6) |
(49.8) |
(53.1) |
(215.3) |
(55.3) |
|
Closing core net debt/(cash) |
|
303.1 |
370.7 |
368.2 |
544.7 |
530.2 |
Finance Leases (FRS 16) |
221.9 |
245.8 |
247.9 |
247.9 |
247.9 |
|
PPP non-recourse |
79.1 |
69.3 |
0.0 |
0.0 |
0.0 |
|
Closing net debt/(cash) |
|
604.1 |
685.8 |
616.1 |
792.6 |
778.1 |
Source: Company accounts, Edison Investment Research
|
|
Research: Metals & Mining
This morning, KEFI Gold and Copper (KEFI) announced it is in talks with its Saudi joint venture partner, ARTAR, to exit its Saudi Arabian joint venture, G&M. The exit will remove KEFI’s obligation to pay US$10m to maintain its beneficial interest in G&M at 25% (cf 15% otherwise).