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Research: Industrials
Renewi is a well-placed strategic asset given its standing in the circular economy and market-leading positions in the Netherlands and Belgium. The Q3 update highlighted weaker construction and demolition markets in the Netherlands leading to reduced company guidance, although management has taken swift action to reduce costs. As these benefits come through, confidence in the company and its long-term opportunities should drive the share price once more.
Renewi |
Softer construction market affecting profitability |
Q3 trading update |
Industrial support services |
31 January 2024 |
Share price performance
Business description
Next events
Analyst
Renewi is a research client of Edison Investment Research Limited |
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Renewi is a well-placed strategic asset given its standing in the circular economy and market-leading positions in the Netherlands and Belgium. The Q3 update highlighted weaker construction and demolition markets in the Netherlands leading to reduced company guidance, although management has taken swift action to reduce costs. As these benefits come through, confidence in the company and its long-term opportunities should drive the share price once more.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/22 |
1,869 |
105.3 |
98 |
0 |
6.9 |
0.0 |
03/23 |
1,892 |
103.7 |
90 |
0 |
7.6 |
0.0 |
03/24e |
1,843 |
69.9 |
60 |
5 |
11.3 |
0.7 |
03/25e |
1,891 |
83.1 |
71 |
10 |
9.5 |
1.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q3 trading affected by weaker Netherlands construction and demolition sector
Activity in the Netherlands’ construction sector continues to be weak, with the latest data for October 2023 showing a 27% annual decrease in the new projects started index (source Centraal Bureau voor de Statistiek). Management announced a programme to generate €15m of cost savings at the interim results, which are now in place and are expected to benefit H224 by €5m. The Belgian business remains more resilient. The demolition and site preparation index was off by 1% in October/November 2023. Nevertheless, the weakness in end markets now suggests overall profitability of the key Commercial Waste division will be below previous expectations. The Mineralz & Water performance has shown the expected volume recovery in the Water business and Specialities expectations are unchanged, with Maltha (glass recycling) remaining strong. However, Coolrec (electronic and electrical equipment recycling) is experiencing headwinds from weaker recyclate (ie plastic) prices. For FY24 our forecast changes are that we now expect EBIT of €109m (down 12.8% from €125m), PBT of €70m (down 18.6% from €86m previously), EPS of 60c (down 19.3% from 75c) and DPS of 5.0c (unchanged). For FY25 we now expect EBIT €126m (down 12.2% from €144m previously), PBT of €83m (down 19.2% from €101m previously), EPS of 71c (down 18.8% from 88c previously) and DPS of 10c (unchanged).
Valuation
The reduction in short-term profit expectations inevitably has a significant impact on our peer group valuation, using shorter-term calendar 2023 and 2024 metrics. Our peer-based valuation of 578p is down from 680p. Our DCF is longer-term based and suggests a valuation of 766p down from 819p. There has been significant corporate activity of late in the sector, including Macquarie’s approach to Renewi. Our valuation based on take-out multiples is 1,052p, a healthy premium even if, like our peer-based valuation, it is affected by the short-term reduction in forecasts.
Q3 trading update
Renewi’s performance has generally been as expected with the exception of the Netherlands construction and demolition sector, which is an important end market for the Commercial Waste division.
Commercial Waste
Commercial Waste is the most important division, accounting for 81% of EBIT in H124. The construction sector, through both construction and demolition, is a key market; construction waste accounts for c 35% of all waste in the EU. The construction sector was weak in the Netherlands in H124 and the primary reason for the group’s decline in Commercial Waste Netherlands profit (€40.3m down to €25.8m). Exhibit 1 shows that the market continues to be soft, which has led to further pressure on returns. The restructuring programme announced at the interims, with a target of €15m annual savings, is on plan and management states that it will deliver a €5m benefit in H224, albeit insufficient to fully offset the weakness in the construction and demolition market. Belgium has proved more resilient; Exhibit 2 highlights the more limited decline in the construction market. Hence our expectations here remain unchanged for Commercial Waste Belgium. Despite these difficulties, we now expect the overall profit in Commercial Waste division H224 to be similar to H124, with FY25 to benefit from the full cost savings.
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Exhibit 1: The Netherlands building projects started (year-on-year change) |
Exhibit 2: Belgium demolition and site preparation activity (year-on-year change) |
|
|
|
Source: Centraal Bureau voor de Statistiek |
Source: Statbel |
|
Exhibit 1: The Netherlands building projects started (year-on-year change) |
|
|
Source: Centraal Bureau voor de Statistiek |
|
Exhibit 2: Belgium demolition and site preparation activity (year-on-year change) |
|
|
Source: Statbel |
Mineralz & Water
The recovery in Water volumes anticipated by management at the interims has been delivered, following extended outages and maintenance in H1. The soil remediation business, ATM, continues to increase volumes of the value-added products (sand, gravel and filler) into the market. Work to reduce stocks of historical treated soil continues to plan.
Specialities
Overall, the Specialities division’s performance was in line with the company’s and our expectations, with Edison forecasting H2 profit to be similar to H1. Maltha (glass recycling) performance remains strong while Coolrec (electronic and electrical equipment recycling such as fridges) has seen some margin pressure from lower recyclate (ie plastic) prices. UK Municipal trading was stable, arguably encouraging for this sub-group of businesses. There is no further news on a potential corporate solution for the UK municipal activities at the current time.
Financials
Given the weaker trading update, we have reduced our forecasts, as highlighted in Exhibit 3.
Exhibit 3: Forecast summary
2024e |
2025e |
|||||
€m |
Old |
New |
Change |
Old |
New |
Change |
Revenues |
1,914 |
1,843 |
-3.7% |
1,964 |
1,891 |
-3.7% |
Normalised operating EBIT |
125 |
109 |
-12.8% |
144 |
126 |
-12.2% |
Normalised operating EBIT margin |
6.5% |
5.9% |
-0.6% |
7.3% |
6.7% |
-0.7% |
Normalised PBT |
86 |
70 |
-18.6% |
101 |
83 |
-18.1% |
Reported PBT |
75 |
59 |
-21.2% |
95 |
77 |
-19.2% |
Normalised basic EPS (c) |
75 |
60 |
-19.3% |
88 |
71 |
-18.8% |
Dividend per share (c) |
5 |
5 |
0.0% |
10 |
10 |
0.0% |
Closing core net debt/(cash) |
406 |
413 |
1.6% |
421 |
441 |
4.6% |
Source: Edison Investment Research
Valuation
We use a combination of valuations: a DCF, peer group and take-out based on recent activity in the sector. Exhibit 4 summarises the changes in valuation. Inevitably the change to forecasts has a more significant impact on the peer group and take-out valuations as they are derived using short-term profit forecasts, while the DCF is based on longer-term expectations.
Exhibit 4: Summary valuation
p/share |
Old |
New |
Change |
DCF |
819 |
766 |
-6.5% |
Peer group |
680 |
578 |
-15.0% |
Take-out |
1,207 |
1,052 |
-12.8% |
Source: Edison Investment Research
Summary details of our DCF (core assumptions: WACC of 9.5% and terminal growth of 2%) and peer-based (Befessa, Cabka, Groupe Pizzono, Lassila & Tikanoja, Mo-Bruk, Seche and Veolia) valuation are shown below.
Exhibit 5: DCF summary valuation (p/share)
Cost of capital |
Terminal growth rate |
||||
(WACC) |
1.0% |
2.0% |
3.0% |
4.0% |
5.0% |
12.0% |
254 |
307 |
373 |
455 |
560 |
11.5% |
318 |
379 |
455 |
552 |
678 |
11.0% |
388 |
459 |
549 |
663 |
816 |
10.5% |
466 |
549 |
655 |
792 |
980 |
10.0% |
554 |
651 |
776 |
943 |
1,176 |
9.5% |
652 |
766 |
916 |
1,121 |
1,416 |
9.0% |
762 |
899 |
1,081 |
1,335 |
1,717 |
8.5% |
888 |
1,052 |
1,275 |
1,597 |
2,104 |
8.0% |
1,033 |
1,231 |
1,509 |
1,926 |
2,620 |
Source: Edison Investment Research
Exhibit 6: Peer valuation (p/share)
EV/EBIT |
EV/EBITDA |
P/E |
||||
2023 |
2024 |
2023 |
2024 |
2023 |
2024 |
|
Rating (x) |
13.8 |
12 |
6.4 |
6.0 |
18.0 |
15 |
Renewi forecast* |
115 |
122 |
238 |
244 |
68 |
69 |
Valuation (€m) |
1585 |
1464 |
1526 |
1465 |
||
Provisions (€m) |
(306) |
(306) |
(306) |
(306) |
||
Debt (€m) |
(413) |
(441) |
(413) |
(441) |
||
Finance leases (€m) |
(246) |
(246) |
(246) |
(246) |
||
Pension deficit (€m) |
(30) |
(30) |
(30) |
(30) |
||
Market cap (€m) |
590 |
442 |
531 |
443 |
||
Number of shares (m) |
80.5 |
80.7 |
80.5 |
80.7 |
||
Value per share (c) |
733 |
547 |
660 |
549 |
1,217 |
1,030 |
Exchange rate (€/£) |
1.15 |
1.15 |
1.15 |
1.15 |
1.15 |
1.15 |
Value per share (p) |
638 |
476 |
574 |
477 |
1,058 |
895 |
Provision adjustment |
(331) |
(331) |
||||
Value per share (p) |
638 |
476 |
574 |
477 |
728 |
565 |
Source: Edison Investment Research. *These are calendarized numbers.
The average peer valuation per share is 578p.
Exhibit 7: Financial summary
€m |
2021 |
2022 |
2023 |
2024e |
2025e |
|
Year to March (€m) |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|
INCOME STATEMENT |
||||||
Revenue |
|
1,693.6 |
1,869.2 |
1,892.3 |
1,843.3 |
1,891.5 |
Cost of Sales |
(1,408.5) |
(1,512.5) |
(1,538.4) |
(1,496.8) |
(1,532.1) |
|
Gross Profit |
285.1 |
356.7 |
353.9 |
346.5 |
359.4 |
|
EBITDA |
|
202.2 |
261.5 |
257.0 |
232.2 |
248.2 |
Operating profit (before amort. and excepts.) |
|
73.0 |
133.6 |
132.9 |
108.8 |
126.4 |
Amortisation of acquired intangibles |
(3.3) |
(3.4) |
(5.0) |
(5.5) |
(6.0) |
|
Exceptionals |
(33.6) |
(6.2) |
(5.6) |
(5.0) |
0.0 |
|
Reported operating profit |
36.1 |
124.0 |
122.3 |
98.3 |
120.4 |
|
Net Interest |
(26.8) |
(28.8) |
(29.2) |
(38.9) |
(43.3) |
|
Joint ventures & associates (post tax) |
1.6 |
0.5 |
0.0 |
0.0 |
0.0 |
|
Profit Before Tax (norm) |
|
47.8 |
105.3 |
103.7 |
69.9 |
83.1 |
Profit Before Tax (reported) |
|
10.9 |
95.7 |
93.1 |
59.4 |
77.1 |
Reported tax |
(5.4) |
(20.3) |
(26.5) |
(14.9) |
(19.3) |
|
Profit After Tax (norm) |
35.8 |
78.8 |
75.6 |
51.0 |
60.6 |
|
Profit After Tax (reported) |
5.5 |
75.4 |
66.6 |
44.6 |
57.8 |
|
Minority interests |
(0.1) |
(0.9) |
(3.7) |
(2.5) |
(3.0) |
|
Net income (normalised) |
35.7 |
77.9 |
71.9 |
48.5 |
57.6 |
|
Av. Shares outstanding (m) |
79.5 |
79.7 |
80.3 |
80.5 |
80.7 |
|
EPS - normalised (c) |
|
45 |
98 |
90 |
60 |
71 |
EPS - normalised fully diluted (c) |
|
45 |
98 |
89 |
60 |
71 |
EPS - basic reported (c) |
|
7 |
93 |
78 |
52 |
68 |
Dividend (c) |
0.0 |
0.0 |
0.0 |
5.0 |
10.0 |
|
EBITDA Margin (%) |
11.9 |
14.0 |
13.6 |
12.6 |
13.1 |
|
Normalised Operating Margin |
4.3 |
7.1 |
7.0 |
5.9 |
6.7 |
|
BALANCE SHEET |
||||||
Fixed Assets |
|
1,612.3 |
1,565.9 |
1,686.2 |
1,692.8 |
1,701.0 |
Intangible Assets |
594.9 |
592.8 |
636.3 |
630.8 |
625.3 |
|
Tangible and Right-of-use Assets |
794.5 |
767.4 |
871.0 |
883.1 |
896.8 |
|
Investments & other |
222.9 |
205.7 |
178.9 |
178.9 |
178.9 |
|
Current Assets |
|
355.7 |
385.9 |
399.3 |
389.6 |
401.3 |
Stocks |
20.6 |
22.5 |
25.2 |
28.2 |
28.9 |
|
Debtors |
247.7 |
269.3 |
289.6 |
279.6 |
290.6 |
|
Cash & cash equivalents |
68.8 |
63.6 |
62.7 |
60.0 |
60.0 |
|
Other |
18.6 |
30.5 |
21.8 |
21.8 |
21.8 |
|
Current Liabilities |
|
(646.7) |
(732.7) |
(665.4) |
(698.6) |
(709.5) |
Creditors |
(546.2) |
(528.4) |
(521.8) |
(521.8) |
(532.7) |
|
Tax and social security |
(13.8) |
(24.2) |
(31.2) |
(31.2) |
(31.2) |
|
Short term borrowings |
(47.8) |
(148.9) |
(66.8) |
(100.0) |
(100.0) |
|
Other |
(38.9) |
(31.2) |
(45.6) |
(45.6) |
(45.6) |
|
Long Term Liabilities |
|
(1,083.7) |
(880.9) |
(1,072.8) |
(1,019.1) |
(1,012.0) |
Long term borrowings |
(689.1) |
(518.7) |
(681.6) |
(687.9) |
(715.8) |
|
Other long term liabilities |
(394.6) |
(362.2) |
(391.2) |
(331.2) |
(296.2) |
|
Net Assets |
|
237.6 |
338.2 |
347.3 |
364.7 |
380.8 |
Minority interests |
(6.1) |
(7.0) |
(10.1) |
(10.1) |
(10.1) |
|
Shareholders' equity |
|
231.5 |
331.2 |
337.2 |
354.6 |
370.7 |
CASH FLOW |
||||||
Operating Cash Flow |
202.2 |
261.5 |
257.0 |
232.2 |
248.2 |
|
Working capital |
82.4 |
(59.9) |
(23.8) |
7.0 |
(0.8) |
|
Exceptional & other |
(31.1) |
(17.1) |
(23.6) |
(66.0) |
(36.0) |
|
Tax |
(14.8) |
(7.6) |
(21.2) |
(18.9) |
(22.4) |
|
Net operating cash flow |
|
238.7 |
176.9 |
188.4 |
154.3 |
189.0 |
Capex |
(57.6) |
(77.3) |
(118.1) |
(112.0) |
(120.0) |
|
Acquisitions/disposals |
(2.7) |
(3.2) |
(60.7) |
0.0 |
0.0 |
|
Net interest |
(15.9) |
(17.2) |
(21.3) |
(39.5) |
(43.9) |
|
Equity financing |
(1.2) |
(1.6) |
(4.7) |
0.0 |
0.0 |
|
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
(8.0) |
|
Net Cash Flow |
161.3 |
77.6 |
(16.4) |
2.8 |
17.1 |
|
Opening net debt/(cash) |
|
(456.9) |
(343.7) |
(303.1) |
(370.7) |
(412.9) |
FX |
(6.4) |
7.6 |
(0.2) |
0.0 |
0.0 |
|
Other non-cash movements |
(41.7) |
(44.6) |
(51.0) |
(45.0) |
(45.0) |
|
Closing net debt/(cash) |
|
(343.7) |
(303.1) |
(370.7) |
(412.9) |
(440.8) |
Finance Leases (FRS16) |
(236.7) |
(221.9) |
(245.8) |
(245.8) |
(245.8) |
|
PPP non-recourse |
(87.6) |
(79.1) |
(69.3) |
(69.3) |
(69.3) |
|
Closing net debt/(cash) |
|
(668.0) |
(604.1) |
(685.8) |
(728.0) |
(755.9) |
Source: Company accounts, Edison Investment Research
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Research: Healthcare
Biodexa has completed the acquisition of global rights to tolimidone from Adhera Therapeutics after a successful $6m (gross proceeds) equity raise, conditional on at least $4m being subscribed for by Adhera secured noteholders. Tolimidone is a clinical-stage lyn kinase activator, which management plans to develop as a potentially disease-modifying treatment for type I diabetes (T1D), bolstering Biodexa’s clinical pipeline and expanding its therapeutic focus beyond oncology. The deal closure follows Biodexa’s completion of a $6m (gross proceeds) equity raise by issuing c 3m stock units at c $2/unit (including ADS/pre-funded warrants along with two attached warrants). The fund-raise is anticipated to support a planned Phase IIa trial in Q224, followed by a Phase IIb trial in Q424.