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Research: Industrials
Renewi’s previously noted increasing confidence of improved ATM production volumes in 2020 have proved to be well founded as the ban on using thermally treated soil in the Netherlands has been lifted. This sets a positive backdrop for management’s forthcoming strategy update and an expected secondary listing on Euronext shortly. On unchanged estimates, it also brings into focus mid single-digit earnings multiples beyond the current year which, given the above, look low by conventional standards.
Written by
Renewi |
Thermally treated soil ban lifted |
ATM update |
Industrial support services |
20 December 2019 |
Share price performance
Business description
Next events
Analyst
Renewi is a research client of Edison Investment Research Limited |
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Renewi’s previously noted increasing confidence of improved ATM production volumes in 2020 have proved to be well founded as the ban on using thermally treated soil in the Netherlands has been lifted. This sets a positive backdrop for management’s forthcoming strategy update and an expected secondary listing on Euronext shortly. On unchanged estimates, it also brings into focus mid single-digit earnings multiples beyond the current year which, given the above, look low by conventional standards.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/18 |
1,760.3 |
63.0 |
5.9 |
3.5 |
5.4 |
10.8 |
03/19 |
1,780.7 |
63.1 |
6.0 |
1.7 |
5.3 |
5.2 |
03/20e |
1,680.7 |
39.7 |
3.7 |
1.7 |
8.6 |
5.2 |
03/21e |
1,719.6 |
58.1 |
5.5 |
2.5 |
5.8 |
7.7 |
Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items. Estimates are now on an IFRS 16 basis and for continuing businesses only.
Scope for improved ATM performance confirmed
ATM’s trading performance – especially in FY19 and FY20 – has been adversely affected by the 2018 national industry ban on the use of thermally treated soil (TGG) in the Netherlands. After an extensive and collaborative testing phase, the Dutch parliament and national regulator have now lifted this ban, allowing TGG to be used in industrial applications (eg construction, earthworks etc) subject to local regulator approval on a case-by-case basis.
In the first instance, as permits are secured, this should allow ATM to begin to clear its stockpile of TGG that had accumulated as a result of the ban. This will then allow the revenue-generating new intake of contaminated soil for treatment. In parallel, following recent investment we expect ATM to continue to develop potential markets for graded soil into alternative market applications. ATM’s other business lines (eg waste water, sludges and chemical waste treatment) have not been affected by the TGG ban and continue as normal.
Management has been understandably cautious regarding the prospective rate at which new permits are secured, leaving FY20 group earnings guidance unchanged. At the very least, the TGG news should support increased investor confidence in subsequent years’ estimates which have an element of ATM recovery already factored in. We believe that ATM’s FY20 EBIT contribution will be c €13m below FY17 levels and our existing estimates currently include the progressive recovery of some but not all of that differential by FY22.
Valuation: Impetus to boost rating
In the year to date, Renewi’s share price has largely traded within the 25–35p range, latterly drifting to current levels since before the 7 November H120 results announcement. The TGG news would seem to support our assertion that FY20 will be a trough year for earnings and subsequent years’ valuation multiples (eg FY21 P/E 5.8x, EV/EBITDA ex pensions cash 4.5x) look compelling. Further reduction in net debt and positive strategic messaging should also provide share price impetus.
Exhibit 1: Financial summary
m's |
2018 |
2018 |
2019 |
2020e |
2021e |
2022e |
|||
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
|
|
Sterling |
Euros |
Euros |
Euros |
Euros |
Euros |
|
Revenue |
|
|
1,565.7 |
1,760.3 |
1,780.7 |
1,680.7 |
1,719.6 |
1,754.3 |
|
Cost of Sales |
|
|
(1,276.9) |
(1,419.2) |
(1,470.4) |
(1,395.0) |
(1,427.3) |
(1,456.1) |
|
Gross Profit |
|
|
288.8 |
341.1 |
310.3 |
285.7 |
292.3 |
298.2 |
|
EBITDA |
|
|
156.9 |
176.3 |
179.7 |
154.6 |
171.5 |
177.8 |
|
Operating Profit (before GW and except.) |
69.1 |
82.5 |
85.5 |
74.0 |
89.4 |
94.2 |
|||
Net Interest |
|
|
(14.2) |
(15.0) |
(14.4) |
(18.0) |
(16.0) |
(16.0) |
|
Other Finance |
|
|
(5.1) |
(7.1) |
(8.4) |
(16.0) |
(15.2) |
(15.2) |
|
JV/Associates |
|
|
2.3 |
2.6 |
0.4 |
(0.3) |
0.0 |
0.0 |
|
Intangible Amortisation |
|
|
(5.8) |
(6.7) |
(6.4) |
(6.6) |
(6.6) |
(6.6) |
|
Non Trading & Exceptional Items |
|
|
(95.7) |
(108.4) |
(145.1) |
(61.3) |
0.0 |
0.0 |
|
Profit Before Tax (Edison norm) |
|
52.1 |
63.0 |
63.1 |
39.7 |
58.1 |
63.0 |
||
Pension net finance costs |
|
|
(0.6) |
(0.7) |
(0.6) |
(0.2) |
(0.2) |
(0.2) |
|
Profit Before Tax (Renewi norm) |
|
51.5 |
62.3 |
62.5 |
39.5 |
57.9 |
62.8 |
||
Profit Before Tax (statutory) |
|
|
(50.0) |
(52.8) |
(89.0) |
(28.4) |
51.3 |
56.2 |
|
Tax - headline |
|
|
2.6 |
1.4 |
12.4 |
(3.4) |
(14.0) |
(15.1) |
|
Profit After Tax (norm) |
|
|
39.1 |
47.2 |
47.5 |
29.9 |
44.2 |
47.9 |
|
Profit After Tax |
|
|
(47.4) |
(51.5) |
(76.6) |
(31.9) |
37.4 |
41.1 |
|
|
|
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding (m) |
|
799.9 |
799.9 |
796.7 |
794.6 |
794.6 |
794.6 |
||
EPS - Edison norm (p/c) FD |
|
|
4.9 |
5.9 |
6.0 |
3.7 |
5.5 |
6.0 |
|
EPS - Renewi norm (p/c) FD |
|
|
4.8 |
5.4 |
6.0 |
3.7 |
5.5 |
6.0 |
|
EPS - (p/c) |
|
|
(5.9) |
(6.8) |
(11.7) |
(4.0) |
4.7 |
5.1 |
|
Dividend per share (p/c) |
|
|
3.05 |
3.46 |
1.68 |
1.65 |
2.45 |
2.68 |
|
|
|
|
|
|
|
|
|
|
|
Gross Margin (%) |
|
|
18.4 |
19.4 |
17.4 |
17.0 |
17.0 |
17.0 |
|
EBITDA Margin (%) |
|
|
10.0 |
10.0 |
10.1 |
9.2 |
10.0 |
10.1 |
|
Operating Margin (before GW and except.) (%) |
4.4 |
4.7 |
4.8 |
4.4 |
5.2 |
5.4 |
|||
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
1,456.3 |
1,669.2 |
1,439.6 |
1,569.8 |
1,558.7 |
1,546.1 |
|
Intangible Assets |
|
|
606.3 |
699.3 |
605.6 |
598.9 |
589.0 |
579.1 |
|
Tangible Assets (inc Right of Use assets) |
|
|
623.0 |
710.8 |
629.1 |
763.6 |
762.4 |
759.7 |
|
Investments |
|
|
227.0 |
259.1 |
204.9 |
207.3 |
207.3 |
207.3 |
|
Current Assets |
|
|
366.2 |
418.0 |
370.9 |
376.1 |
372.6 |
381.6 |
|
Stocks |
|
|
23.3 |
26.6 |
26.0 |
24.7 |
25.2 |
25.7 |
|
Debtors |
|
|
279.0 |
318.4 |
294.5 |
274.7 |
280.6 |
286.1 |
|
Cash |
|
|
63.9 |
73.0 |
50.4 |
76.7 |
66.8 |
69.8 |
|
Current Liabilities |
|
|
(545.8) |
(631.0) |
(717.8) |
(586.4) |
(590.5) |
(602.7) |
|
Creditors |
|
|
(532.9) |
(616.3) |
(599.1) |
(567.8) |
(571.9) |
(584.1) |
|
Short term borrowings |
|
|
(12.9) |
(14.7) |
(118.7) |
(18.6) |
(18.6) |
(18.6) |
|
Long Term Liabilities |
|
|
(894.3) |
(1,019.9) |
(895.1) |
(1,080.9) |
(1,038.2) |
(995.4) |
|
Long term borrowings |
|
|
(489.7) |
(558.9) |
(483.7) |
(548.6) |
(548.6) |
(548.6) |
|
Other long term liabilities |
|
|
(404.6) |
(461.0) |
(411.4) |
(532.3) |
(489.6) |
(446.8) |
|
Net Assets |
|
|
382.4 |
436.3 |
197.6 |
278.5 |
302.7 |
329.6 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
128.4 |
143.6 |
86.8 |
140.0 |
180.7 |
195.7 |
|
Net Interest |
|
|
(16.9) |
(19.1) |
(17.7) |
(28.6) |
(22.2) |
(22.2) |
|
Tax |
|
|
(6.7) |
(7.6) |
(13.2) |
(3.4) |
(14.0) |
(15.1) |
|
Net Capex |
|
|
(81.2) |
(92.3) |
(99.4) |
(94.7) |
(105.8) |
(105.8) |
|
Acquisitions/disposals |
|
|
(4.1) |
(4.8) |
22.7 |
101.3 |
0.0 |
0.0 |
|
Equity Financing |
|
|
0.6 |
0.6 |
(2.7) |
0.3 |
0.0 |
0.0 |
|
Dividends |
|
|
(24.4) |
(27.6) |
(27.4) |
(8.6) |
(13.2) |
(14.2) |
|
Net Cash Flow |
|
|
(4.3) |
(7.3) |
(50.9) |
106.3 |
25.5 |
38.4 |
|
Opening core net debt/(cash) |
|
|
423.9 |
492.7 |
500.0 |
552.0 |
490.5 |
500.4 |
|
IFRS16 lease capital repayments |
|
|
0.0 |
0.0 |
0.0 |
(35.4) |
(35.4) |
(35.4) |
|
Other |
|
|
(10.5) |
(0.0) |
(1.1) |
(9.4) |
0.0 |
0.0 |
|
Closing core net debt/(cash) |
|
|
438.7 |
500.0 |
552.0 |
490.5 |
500.4 |
497.4 |
|
Closing PPP/PFI non-recourse net debt |
|
82.9 |
94.6 |
95.4 |
89.3 |
89.3 |
89.3 |
||
IFRS16 Lease finance |
|
|
|
|
|
144.0 |
102.4 |
60.8 |
|
Source: Company accounts, Edison Investment Research. Note: Estimates are on an IFRS 16 basis and for continuing businesses only.
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