Renewi — So far, so good

Renewi (LSE: RWI)

Last close As at 27/03/2024

GBP5.64

−1.00 (−0.18%)

Market capitalisation

GBP456m

More on this equity

Research: Industrials

Renewi — So far, so good

The recent AGM update was consistent with FY18 commentary; guidance and our estimates are unchanged. Year-to-date progress is clearly visible in three divisions where market conditions appear to be favourable. In the fourth (Hazardous), new customer demand is successfully building; management’s expectation remains for this to start to be met during H2, subject to regulatory clearance. Flagged merger integration benefits for FY19 are as before. The intention to move to euro-based reporting with the H119 results is entirely logical and reflects the company’s primary source of profitability.

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Written by

Industrials

Renewi

So far, so good

AGM update

Industrial support services

24 July 2018

Price

69.7p

Market cap

£558m

£/€1.12

Net debt (£m) at end March 2018
Core group net debt (ex PPP/PFI finance)

438.7

Shares in issue

800.1m

Free float

99.5%

Code

RWI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.3)

(6.9)

(22.0)

Rel (local)

(11.8)

(10.4)

(24.3)

52-week high/low

108.2p

69.0p

Business description

Renewi is a waste-to-product company with operations primarily in the UK, the Netherlands and Belgium and was formed from the merger between Shanks Group and Van Gansewinkel Group in 2017. Its activities span the collection, processing and resale of industrial, hazardous and municipal waste.

Next events

FY18 final DPS 2.1p to be paid

27 July 2018

H1 trading ends

September

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

The recent AGM update was consistent with FY18 commentary; guidance and our estimates are unchanged. Year-to-date progress is clearly visible in three divisions where market conditions appear to be favourable. In the fourth (Hazardous), new customer demand is successfully building; management’s expectation remains for this to start to be met during H2, subject to regulatory clearance. Flagged merger integration benefits for FY19 are as before. The intention to move to euro-based reporting with the H119 results is entirely logical and reflects the company’s primary source of profitability.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/17

779.2

26.0

3.7

3.1

18.8

4.4

03/18

1,565.7

52.1

4.9

3.1

14.4

4.4

03/19e

1,589.9

70.6

6.6

3.1

10.6

4.4

03/20e

1,622.2

86.7

8.2

3.5

8.6

4.9

Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items.

FY19 starts in line with existing guidance

Brief updates were provided on each of the four divisions. The largest of these is Commercial, where the initial roll-out experience for a new IT platform has been favourable in Belgium (where completion is expected by year end) and is now underway in the Netherlands (a larger, more complex market with roll-out variations). As a backdrop, local volume and pricing conditions appear to be good albeit with some tightness in incinerator capacity. Reference to calmer paper and plastics recyclate pricing is helpful but perhaps less significant for Renewi than other operators. In Hazardous, management has reiterated an expectation that ATM soil remediation operations should resume full production during H2; there is clear demand building although regional authority regulators remain a hurdle. Elsewhere, the Monostreams and Municipal divisions are both trading ahead of the prior year thus far and Municipal’s Ottawa facility is moving to an improved volume footing following a revised customer agreement. At the group level, we are reminded that Renewi is on track to realise €30m of merger integration benefits by the end of FY19 (ie an incremental €15m in this financial year).

Valuation: Curious retracement

Having responded well to the FY18 results announcement at the end of May, Renewi’s share price has retraced back towards 52-week lows pre-results. Even adjusting for the final dividend (ex 2.1p DPS on 28 June) this reversal looks curious in the light of unchanged estimates, which offer a three-year EPS CAGR to 2021 in excess of 20%. A PEG of 0.7x and the FY21 P/E and EV/EBITDA (adjusted for pensions cash) of 8.0x and 4.7x respectively suggest little credit is being given for the growth profile and greater operational cohesion to be realised. An expected FY19 4.4% dividend yield adds to the total return potential.

Exhibit 1: Financial summary

£m

2013

2014

2015

2016

2017

2018

2019e

2020e

2021e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

 

 

Revenue

614.6

633.4

601.4

614.8

779.2

1,565.7

1,589.9

1,622.2

1,659.6

Cost of Sales

(511.6)

(528.3)

(506.1)

(517.8)

(653.3)

(1,276.9)

(1,296.6)

(1,323.0)

(1,353.5)

Gross Profit

103.0

105.1

95.3

97.0

125.9

288.8

293.3

299.2

306.1

EBITDA

88.4

88.5

72.6

69.2

81.6

156.9

181.7

201.3

207.9

Operating Profit (before GW and except.)

44.9

45.6

34.3

33.4

36.5

69.1

92.4

108.5

113.9

Net Interest

(10.8)

(12.6)

(11.4)

(11.2)

(10.3)

(14.2)

(16.2)

(16.2)

(16.0)

Other Finance

(3.9)

(2.9)

(1.5)

(1.6)

(2.2)

(5.1)

(7.9)

(7.9)

(7.9)

JV/Associates

0.3

0.3

0.8

1.0

2.0

2.3

2.3

2.3

2.3

Intangible Amortisation

(2.5)

(2.3)

(1.9)

(1.8)

(2.1)

(5.8)

(5.8)

(5.8)

(5.8)

Non Trading & Exceptional Items

(37.8)

(20.2)

(40.3)

(21.8)

(85.0)

(95.7)

(30.0)

(9.3)

0.0

Profit Before Tax (Edison norm)

30.5

30.4

22.2

21.6

26.0

52.1

70.6

86.7

92.3

Pension net finance costs

(0.3)

(0.3)

(0.5)

(0.5)

(0.3)

(0.6)

(0.6)

(0.6)

(0.6)

Profit Before Tax (Renewi norm)

30.2

30.1

21.7

21.1

25.7

51.5

70.0

86.1

91.7

Profit Before Tax (FRS 3)

(10.1)

7.6

(20.5)

(2.5)

(61.4)

(50.0)

34.2

71.0

85.9

Tax - headine

(1.1)

(5.8)

2.3

(1.5)

0.5

2.6

(17.0)

(20.6)

(21.5)

Profit After Tax (norm)

22.8

23.2

20.5

19.3

20.1

39.1

52.9

65.5

70.1

Profit After Tax (FRS 3)

(11.2)

1.8

(18.2)

(4.0)

(60.9)

(47.4)

17.1

50.4

64.3

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

448.3

448.9

449.1

449.5

536.3

799.9

800.1

800.1

800.1

EPS - Edison norm (p) FD

5.1

5.1

4.5

4.3

3.7

4.9

6.6

8.2

8.7

EPS - Renewi norm (p) FD

5.0

5.1

4.4

4.2

3.7

4.8

6.5

8.1

8.7

EPS - FRS 3 (p)

(7.9)

(6.3)

(3.8)

(0.9)

(11.4)

(5.9)

2.1

6.3

8.0

Dividend per share (p)

3.05

3.05

3.05

3.05

3.05

3.05

3.05

3.45

3.60

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

16.8

16.6

15.9

15.8

16.2

18.4

18.4

18.4

18.4

EBITDA Margin (%)

14.4

14.0

12.1

11.3

10.5

10.0

11.4

12.4

12.5

Operating Margin (before GW and except.) (%)

7.3

7.2

5.7

5.4

4.7

4.4

5.8

6.7

6.9

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

Fixed Assets

772.1

744.4

737.3

670.4

1,420.9

1,456.3

1,463.2

1,463.6

1,458.3

Intangible Assets

251.8

211.1

173.8

194.5

603.3

606.3

600.1

590.4

578.5

Tangible Assets

375.3

322.7

282.9

297.0

587.4

623.0

636.1

646.2

652.8

Investments

145.0

210.6

280.6

178.9

230.2

227.0

227.0

227.0

227.0

Current Assets

247.3

265.1

224.0

177.0

348.2

366.2

371.7

353.6

401.4

Stocks

11.0

9.4

6.9

6.8

19.9

23.3

23.1

23.4

23.9

Debtors

160.9

151.5

156.3

135.5

253.4

279.0

284.8

289.1

294.1

Cash

75.4

104.2

60.8

34.7

74.9

63.9

63.9

41.0

83.4

Current Liabilities

(248.9)

(229.6)

(277.4)

(227.2)

(483.2)

(545.8)

(567.5)

(526.1)

(525.1)

Creditors

(230.7)

(226.3)

(202.4)

(224.8)

(466.8)

(532.9)

(525.3)

(526.1)

(525.1)

Short term borrowings

(18.2)

(3.3)

(75.0)

(2.4)

(16.4)

(12.9)

(42.2)

0.0

0.0

Long Term Liabilities

(444.2)

(504.7)

(432.5)

(434.2)

(845.7)

(894.3)

(892.3)

(891.2)

(897.1)

Long term borrowings

(234.5)

(253.8)

(140.8)

(224.9)

(482.4)

(489.7)

(489.7)

(489.7)

(489.7)

Other long term liabilities

(209.7)

(250.9)

(291.7)

(209.3)

(363.3)

(404.6)

(402.6)

(401.5)

(407.4)

Net Assets

326.3

275.2

251.4

186.0

440.2

382.4

375.1

399.9

437.4

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

Operating Cash Flow

67.7

78.6

55.8

72.2

27.9

128.4

126.4

178.7

200.3

Net Interest

(11.5)

(13.2)

(12.8)

(12.8)

(19.0)

(16.9)

(16.2)

(16.2)

(16.0)

Tax

1.9

(1.6)

(5.7)

(4.8)

(5.3)

(6.7)

(13.0)

(18.6)

(20.5)

Net Capex

(50.1)

(27.1)

(37.2)

(25.8)

(41.2)

(81.2)

(102.0)

(99.0)

(94.5)

Acquisitions/disposals

(59.2)

(54.1)

(67.3)

18.2

39.5

(4.1)

0.0

0.0

0.0

Equity Financing

0.4

0.2

0.1

0.3

136.5

0.6

0.0

0.0

0.0

Dividends

(13.7)

(13.7)

(13.7)

(13.7)

(15.1)

(24.4)

(24.4)

(25.6)

(26.8)

Net Cash Flow

(64.5)

(30.9)

(80.8)

33.6

123.3

(4.3)

(29.3)

19.3

42.4

Opening core net debt/(cash)

206.2

177.3

152.9

155.0

192.6

423.9

438.7

468.0

448.7

HP finance leases initiated

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

93.4

55.3

78.7

(71.2)

(354.6)

(10.5)

0.0

(0.0)

(0.0)

Closing core net debt/(cash)

177.3

152.9

155.0

192.6

423.9

438.7

468.0

448.7

406.3

Closing PPP/PFI non-recourse net debt

100.1

151.2

222.6

91.1

87.1

82.9

82.9

82.9

82.9

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Renewi and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Renewi and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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