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Research: Industrials
A Q3 update reaffirmed Renewi’s existing FY21 expectations, with an underlying mix modestly more in favour of Commercial activities offsetting a slower than planned ramp up of thermally treated soil shipments. Cash generation appears to have been very good in Q3 and, despite some outflow in Q4, the year-end net debt position could well be below our current projection. This reassuring update confirms the resilience of waste stream activities with full-year and strategic aspirations maintained.
Written by
Renewi |
On track for FY expectations |
Q3 update |
1 February 2021 |
Share price performance
Business description
Next events
Analyst
Renewi is a research client of Edison Investment Research Limited |
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A Q3 update reaffirmed Renewi’s existing FY21 expectations, with an underlying mix modestly more in favour of Commercial activities offsetting a slower than planned ramp up of thermally treated soil shipments. Cash generation appears to have been very good in Q3 and, despite some outflow in Q4, the year-end net debt position could well be below our current projection. This reassuring update confirms the resilience of waste stream activities with full-year and strategic aspirations maintained.
Industrial support services |
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/19 |
1,780.7 |
63.1 |
6.0 |
1.7 |
7.6 |
3.7 |
03/20 |
1,775.4 |
54.3 |
5.4 |
0.5 |
9.1 |
1.1 |
03/21e |
1,587.1 |
22.2 |
2.0 |
0.0 |
22.6 |
N/A |
03/22e |
1,691.3 |
46.4 |
4.3 |
0.0 |
10.6 |
N/A |
03/23e |
1,754.5 |
69.8 |
6.6 |
0.6 |
7.0 |
1.2 |
Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items. Figures for FY20 onwards are on an IFRS 16 basis.
Commercial remains firm, soil shipments pending
In Q3, Commercial waste volumes improved slightly year-on-year in both of Renewi’s main trading countries, with the Netherlands tracking at 98% of Q320 levels (100bp higher than Q2 and 400bp above Q1) while the Belgian equivalent was 92% (up from 91% and 76% respectively). We note that lockdowns towards the period end had a marginal effect on this outturn; nevertheless, these figures show the collection and processing of waste streams has been resilient during 2020. Higher than anticipated recyclate prices will have also benefited secondary income streams. We believe strong construction and bulky waste activity is the primary driver behind better relative performance in the Netherlands. In Mineralz & Waste, thermally treated soil production has not yet ramped up to anticipated levels; we assume this to be due to storage capacity constraints as permitting activity for post treatment soil placement is below expectations. Otherwise, this division appears well placed to deliver the activity uplift outlined previously once the permit process gains momentum.
Positive cash flow performance
A further €58m reduction in core net debt (ex IFRS 16 leases) to €323m over the quarter, aided by working capital control. While management flags a higher-than-expected year-end position (partly a result of placing thermally treated soil, which is a business cost), our initial impression is this is likely to be below the €424m that we currently project. Renewi is committed to delivering a significant earnings uplift over the next three years and remains confident the strategy is in place to achieve this. Our estimates are unchanged.
Valuation: On a recovery footing
Renewi’s share price has recovered well from lows at the end of September (the H121 trading period end) and is now just off its three-month high. On our existing estimates, the near-term rating on trough earnings (FY21) has become inflated but the P/E and EV/EBITDA return to 7.0x and 4.4x just over two years out (FY23).
Exhibit 1: Financial summary
m's |
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 |
1,587.1 |
1,691.3 |
1,754.5 |
Cost of Sales |
|
|
(1,276.9) |
(1,419.2) |
(1,470.4) |
(1,467.5) |
(1,317.3) |
(1,399.6) |
(1,447.5) |
Gross Profit |
|
|
288.8 |
341.1 |
310.3 |
307.9 |
269.8 |
291.7 |
307.0 |
EBITDA |
|
|
156.9 |
176.3 |
179.7 |
167.1 |
133.3 |
159.0 |
182.9 |
Operating Profit (before GW and except.) |
|
69.1 |
82.5 |
85.5 |
87.6 |
52.3 |
76.5 |
98.9 |
|
Net Interest |
|
|
(14.2) |
(15.0) |
(14.4) |
(18.5) |
(18.5) |
(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) |
(17.2) |
(10.0) |
(6.0) |
Profit Before Tax (Edison norm) |
|
|
52.1 |
63.0 |
63.1 |
54.3 |
22.2 |
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 |
22.4 |
46.4 |
69.8 |
Profit Before Tax (statutory) |
|
|
(50.0) |
(52.8) |
(89.0) |
(59.4) |
1.8 |
33.0 |
60.4 |
Tax - headline |
|
|
2.6 |
1.4 |
12.4 |
(1.1) |
(2.6) |
(11.1) |
(16.8) |
Profit After Tax (norm) |
|
|
39.1 |
47.2 |
47.5 |
41.0 |
16.8 |
35.3 |
53.1 |
Profit After Tax |
|
|
(47.4) |
(51.5) |
(76.6) |
(60.5) |
(0.8) |
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 |
2.0 |
4.3 |
6.6 |
EPS - Renewi norm (p/c) FD |
|
|
4.8 |
5.4 |
6.0 |
5.4 |
2.1 |
4.3 |
6.6 |
EPS - (p/c) |
|
|
(5.9) |
(6.8) |
(11.7) |
(9.8) |
(0.2) |
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 |
8.4 |
9.4 |
10.4 |
Operating Margin (before GW and except.) (%) |
|
4.4 |
4.7 |
4.8 |
4.9 |
3.3 |
4.5 |
5.6 |
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
1,456.3 |
1,669.2 |
1,439.6 |
1,616.8 |
1,577.4 |
1,578.8 |
1,583.7 |
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 |
777.4 |
786.3 |
798.7 |
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 |
392.2 |
399.7 |
425.0 |
Stocks |
|
|
23.3 |
26.6 |
26.0 |
20.7 |
18.6 |
19.7 |
20.4 |
Debtors |
|
|
279.0 |
318.4 |
456.9 |
288.1 |
280.1 |
294.0 |
303.2 |
Cash |
|
|
63.9 |
73.0 |
50.4 |
194.5 |
93.5 |
86.0 |
101.4 |
Current Liabilities |
|
|
(545.8) |
(631.0) |
(758.3) |
(635.2) |
(598.0) |
(611.8) |
(624.5) |
Creditors |
|
|
(532.9) |
(616.3) |
(639.6) |
(618.4) |
(584.3) |
(598.1) |
(610.8) |
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 |
222.4 |
244.2 |
287.9 |
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
128.4 |
143.6 |
86.8 |
167.8 |
171.8 |
144.6 |
177.2 |
Net Interest |
|
|
(16.9) |
(19.1) |
(17.7) |
(27.0) |
(24.9) |
(24.4) |
(23.4) |
Tax |
|
|
(6.7) |
(7.6) |
(13.2) |
(10.1) |
(10.5) |
(5.4) |
(11.1) |
Net Capex |
|
|
(81.2) |
(92.3) |
(99.4) |
(73.4) |
(74.9) |
(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 |
63.6 |
27.4 |
50.4 |
Opening core net debt/(cash) |
|
|
423.9 |
492.7 |
500.0 |
552.0 |
457.2 |
423.9 |
431.4 |
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 |
423.9 |
431.4 |
416.0 |
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.
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Research: Investment Companies
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