Renewi — Now a pure-play European recycler

Renewi (LSE: RWI)

Last close As at 03/12/2024

GBP8.05

−3.00 (−0.37%)

Market capitalisation

GBP649m

More on this equity

Research: Industrials

Renewi — Now a pure-play European recycler

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.

David Larkam

Written by

David Larkam

Analyst, Industrials

Industrials

Renewi

Now a pure-play European recycler

Interim results

Industrial support services

13 November 2024

Price

586p

Market cap

£468m

€1.20/£

Net debt pre-PPPs and leases at 30 September 2024

€358m

Shares in issue

80.6m

Free float

98.8%

Code

RWI

Primary exchange

LSE

Secondary exchange

Amsterdam Euronext

Share price performance

%

1m

3m

12m

Abs

(8.3)

(11.3)

2.4

Rel (local)

(5.8)

(9.5)

(6.8)

52-week high/low

700p

537p

Business description

Renewi is a leading waste-to-product company in some of the world’s most advanced circular economies, with operations primarily in the Netherlands and Belgium. Its activities span the collection, processing and resale of industrial and hazardous waste.

Next events

Year-end update (provisional)

April 2025

FY25 results (provisional)

May 2025

Analyst

David Larkam

+44 (0)20 3077 5700

Renewi is a research client of Edison Investment Research Limited

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*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

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

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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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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