Renewi — UK Municipal exit offers an inflection point

Renewi (LSE: RWI)

Last close As at 24/06/2024

GBP6.77

−18.00 (−2.59%)

Market capitalisation

GBP546m

More on this equity

Research: Industrials

Renewi — UK Municipal exit offers an inflection point

The proposed sale of the UK Municipal business is a major step in exiting significant liabilities and risk, along with focusing Renewi as a European specialist in recycling, generating higher-value recycled materials. With an associated growth agenda, the long-seen discount to peers should start to reduce as the cash generation reinvigorates the balance sheet.

David Larkam

Written by

David Larkam

Analyst, Industrials

Industrials

Renewi

UK Municipal exit offers an inflection point

Results and disposal

Industrial support services

3 June 2024

Price

640p

Market cap

£516m

€1.15/£

Net debt (€m) pre finance leases at 31 March 2024

368.1

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

17.2

20.2

23.6

Rel (local)

15.0

10.8

11.3

52-week high/low

734p

450p

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, Belgium and the UK. Its activities for the collection of municipal waste are to be sold.

Next events

AGM update

11 July 2024

Half year results

12 November 2024

Analyst

David Larkam

+44 (0)20 3077 5700

Renewi is a research client of Edison Investment Research Limited

The proposed sale of the UK Municipal business is a major step in exiting significant liabilities and risk, along with focusing Renewi as a European specialist in recycling, generating higher-value recycled materials. With an associated growth agenda, the long-seen discount to peers should start to reduce as the cash generation reinvigorates the balance sheet.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

03/23

1,704

105.2

89

0.0

8.3

N/A

03/24

1,689

68.0

61

5.0

12.1

0.7

03/25e

1,751

81.6

70

10

10.5

1.4

03/26e

1,825

92.3

80

12.5

9.2

1.7

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items.

Sale of the UK Municipal business

Renewi’s UK Municipal business is a collection of public-private partnerships (PPPs) in the UK, operating waste treatment facilities for councils, and have proved a drag on the group (FY24 cash outflow €16m and provisions of €247m). The businesses are being sold to Biffa. While this will require funding of €146m, ex €7-8m fees, it will significantly improve future cash by €15–20m a year, reduce volatility and potential risk, assist group margin by c 0.5% and provide great focus for both investors and management. Management estimates the deal will leave net debt/EBITDA at c 2.9x, which will reduce by 0.4–0.5x pa. Completion is expected by the end of 2024.

FY24 results

A combination of weaker commercial waste markets, particularly in the Netherlands construction sector, and softer recyclate prices affected profits, despite improvements in Mineralz & Water from the turnaround at ATM and the early benefits of the Simplicity efficiency programme. Higher financing costs, driven by rising rates in Europe, had a further impact on PBT and EPS. Cash flow was robust, despite continued legacy costs, with core net debt marginally improved. The company reinstated the dividend, with a 5c final dividend.

Outlook and forecasts

Management expectations are unchanged, with a return to growth with benefits from the Simplify efficiency programme (€10m) and ATM turnaround (€5m) assisting margin expansion. Our numbers are adjusted for the disposal of the UK Municipals, in particular the full year interest cost for FY26. For FY25 we estimate underlying PBT of €81.6m (down 1.8%) and normalised EPS of 70c (down 1.7% and introduce FY26 estimates underlying PBT of €92.3m and normalised EPS of 80c.

Valuation: Upside from exiting the UK Municipals

Exiting the Municipal business removes significant onerous contract provisions from the balance sheet, which had proved to be a drag on our valuation. Our DCF valuation using a WACC of 10% and a terminal growth rate of 2%, moves to 849p/share, up from 766p (+10.8%). Our peer group valuation, assisted by ratings improvements in the sector, averages 845p, up from 578p (+46.1%).

Sale of the UK Municipal business

The UK Municipal business is a collection of PPPs in the UK operating waste treatment facilities for councils. These activities have proved challenging, leading to significant losses as highlighted by the increasing provisions and annual cash outflow.

Exhibit 1: Year-end onerous contract provisions and write offs (€m)

Exhibit 2: Cash outflow per year (€m)

Source: Renewi

Source: Renewi

Exhibit 1: Year-end onerous contract provisions and write offs (€m)

Source: Renewi

Exhibit 2: Cash outflow per year (€m)

Source: Renewi

Hence management decided to exit these operations, culminating in an agreement to sell them to Biffa, another UK waste company. The financial terms will require Renewi to provide €146m of funding but will remove the associated net debt of €67m from Renewi’s balance sheet (reported as non-core debt as it is non-recourse) and eliminate future losses and cash consumption.

The cash outflow suggests a pro-forma net debt (excluding finance leases) of c €514m and net debt/EBITDA of 2.9x. The company has €705m of liquidity and has also arranged a bridging loan of €120m. Clearly this is putting additional leverage on the balance sheet ahead of management’s target of net debt/EBITDA of c 2.0x. Hence, management has stressed a focus on cash generation and believes that it can reduce leverage by 0.4–0.5x a year. The deal is expected to close by the end of 2024.

The benefits of the deal for Renewi include:

An improved and less volatile balance sheet. The net carrying value in the balance sheet is negative €89m, but removes a degree of volatility and risk from the onerous contracts, as highlighted by the increases in provisions seen in recent years.

Improved group margin and cash flow. The disposal is expected to increase group EBIT margin by 0.5%. More important is the removal of €15–20m of annual cash outflow.

Improved focus and less management distraction. The disposal improves the focus of the group as a specialist European recycling business, focused on generating higher value recyclates. It will also free up management bandwidth to focus on the growth agenda.


2024 results

Overall

A combination of softer commercial waste markets, particularly in the Netherlands construction sector, and softer recyclate prices affected profitability despite improvements in Mineralz & Water and the early benefits of the Simplicity efficiency programme. Higher financing costs, driven by rising rates in Europe, had a further impact on PBT and EPS. Cash flow was robust, despite continued legacy costs, with core net debt unchanged. The company reinstated the dividend with a 5c final dividend.

Exhibit 3: Summary underlying financials (€m)

FY23

FY24

Change y-o-y

Sales

1,704

1,689

-1%

Underlying EBITDA

256

232

-9%

Underlying EBIT

132

106

-20%

Underlying PBT

103

68

-34%

EPS (c)

89

61

-31%

DPS (c)

0

5

N/A

Core net cash/(debt)

(371)

(368)

-1%

Source: Renewi

Commercial Waste

Commercial Waste’s top line was affected by lower volumes, in particular in the Netherlands due to the weak construction market, where Renewi participates in the treatment of demolition waste. Price increases were put through, albeit these were behind the inflationary levels. Increases were particularly seen in wages, with the delta largely offset through cost initiatives, including flexing SG&A and early benefits from the group’s Simplify programme. The key impact on profitability came from the reduction in recyclate prices, as can be seen in the 24% reduction in the outbound revenue.

Exhibit 4: Commercial waste key financials (€m)

FY23

FY24

Change

Netherlands

Sales

932

912

-2%

Operating margin

8.3%

5.8%

Operating profit

76.9

52.9

-31%

Belgium

Sales

468

476

2%

Operating margin

11.2%

9.6%

Operating profit

52.4

45.6

-13%

Total division

Inbound

1,090

1,129

4%

Outbound

218

165

-24%

On-site

64

67

5%

Other

26

24

-9%

Total turnover

1,397

1,385

-1%

Operating margin

9.3%

7.1%

Operating profit

129.3

98.5

-24%

Source: Renewi

Positive operational progress was made through new contract wins with large industrial customers and the successful commissioning of an advanced sorting line in Ghent, serving the new VLAREMA 8 recycling requirement, and a hard plastics sorting line in Acht.

Exhibit 5: Netherlands construction sector – demolition activity index

Exhibit 6: Belgium construction sector – demolition activity index

Source: Centraal Bureau voor de Statistiek

Source: Statbel

Exhibit 5: Netherlands construction sector – demolition activity index

Source: Centraal Bureau voor de Statistiek

Exhibit 6: Belgium construction sector – demolition activity index

Source: Statbel

Mineralz & Water

Exhibit 7: Mineralz & Water key financials (€m)

FY23

FY24

Change y-o-y

Sales

190.9

181.6

-5%

Operating margin

0.3%

5.3%

Operating profit

0.5

9.6

1820%

Source: Renewi

While Mineralz & Water’s top line was stable, profitability improved significantly. Water performance was positive, but key has been the turnaround of ATM. The improved quality of the sand and filler, along with regulatory qualification, has driven better revenue and margin. Management is confident of further progress towards the target of returning to historical profitability, which will be assisted by additional volume given that the plant is operating at less than 50% capacity, and improved pricing as additional products gain regulatory approval. The inventory of thermally treated soil (TGG) has reduced by a further 100kt, albeit with 450kt remaining, although management is confident of significant progress on this front in the current year.

Specialities

Exhibit 8: Specialities key financials (€m)

FY23

FY24

Change y-o-y

Sales

160.2

175.2

9%

Operating margin

9.9%

9.3%

Operating profit

15.9

16.3

3%

Source: Renewi

In the Specialities division, Maltha glass recycling continued to perform well, with higher pricing offsetting a slight decline in volumes. Coolrec, electricals recycling, saw record volumes, up over 10%, although profitability was affected by the weaker plastic recyclate pricing. Perhaps most interesting is a new law in France requiring electric boilers to be recycled from January 2025, for which Coolrec is investing.


Cash flow

Exhibit 9: Summary cash flow (€m)

FY23

FY24

Adjusted free cash flow

72.9

69.6

Deferred COVID taxes

(19.7)

(19.9)

Offtake of ATM soil

(1.2)

(2.5)

UK Municipal contracts

(12.2)

(15.8)

Renewi 2.0 & other

(4.1)

(5.3)

Other

(10.4)

(5.2)

Free cash flow

25.3

20.9

Growth capex

(30.8)

(22.0)

Acquisitions/disposals

(59.4)

0.2

Total cash flow

(64.9)

(0.9)

Core net cash/(debt)

(370.6)

(368.1)

Finance leases

(245.8)

(247.9)

PPP debt

(69.3)

Total net cash/(debt)

(685.7)

(616.0)

Source: Renewi

Free cash flow was similar to the previous year. Improved working capital and lower net capex, assisted by disposals, were offset by higher financing charges due to higher rates across Europe and increased tax due to changes in payment requirements in the Netherlands.

Free cash continued to support legacy items, including deferred COVID taxes of €19.9m (the final €10m is due in the current year) and UK Municipals of €15.8m (which will not repeat post disposal). Free cash flow supported growth capex of €22.0m.

Core net debt reduced marginally, and overall debt (including finance leases and PPP debt) improved further due to the deconsolidation the UK Municipals moving to assets held for sale.

Outlook and forecast update

Management’s outlook is for a return to growth in the current year, with significant margin improvement. In terms of the top line, a levelling of recyclate prices and stabilisation of volumes in the construction sector should remove downside pressure, while additional investments, such as the new line at Acht, should provide volume growth. Management has pointed to €10m benefit from the Simplify programme and an additional €5m from the ATM turnaround, effectively underpinning our EBIT forecast progression from €105.5m in FY24 to €122.0m in FY25e.

Our new forecasts are unchanged on an underlying basis. The greatest impacts come from the sale of the UK Municipal business on the balance sheet for the end of FY25 and the increase in financing cost for FY26 (note we have assumed completion at the end of FY25, albeit management is aiming to complete by the end of calendar 2024).

Exhibit 10: Summary forecast changes

FY25e

FY26e

€m

Old

New

Change

New

  

Revenues

1,891

1,751

-7.4%

1,825

EBITDA

248

253

1.8%

281

Normalised operating profit

126

122

-3.5%

146

Normalised operating profit margin

6.7%

7.0%

0.3%

8.0%

Normalised PBT

83

82

-1.8%

92

Reported PBT

77

76

-2.0%

86

Normalised basic EPS (c)

71

70

-1.7%

80

Dividend per share (c)

10

10

0.0%

12.5

Closing core net debt/(cash)

441

541

22.8%

527

Source: Edison Investment Research

Valuation

DCF based valuation

Exhibit 11 provides a discounted cash flow (DCF) valuation relative to the weighted cost of capital (WACC) and longer-term growth rates. Our DCF valuation using a WACC of 10% and a terminal growth rate of 2% moves to 849p a share, up from 766p (+10.8%).

Exhibit 11: DCF valuation per share (p) sensitivity to WACC and terminal growth rate assumptions

Terminal growth rate

0.0%

1.0%

2.0%

3.0%

4.0%

WACC

12.0%

413

457

510

574

654

11.0%

533

590

660

747

860

10.0%

677

753

849

971

1,135

9.0%

855

959

1,093

1,271

1,521

8.0%

1,079

1,225

1,420

1,692

2,101

Source: Edison Investment Research

Peer based valuation

The following table is based on European peer group valuations, reflecting both the focus of Renewi’s earnings to Belgium/Netherlands and the lack of UK-listed comparable companies.

Exhibit 12: European peers

Market cap

EV/EBIT (x)

EV/EBITDA (x)

P/E (x)

£m

2024

2025

2024

2025

2024

2025

Befessa

1,149

13.1

10.9

8.3

7.2

15.6

12.1

Cabka

97

17.2

11.3

5.7

4.8

30.7

16.7

Groupe Pizzono

253

14.3

13.7

5.5

5.3

19.1

18.2

Lassila & Tikanoja

288

13.3

11.1

5.4

5

11.9

9.8

Mo-Bruk

220

8.9

7

7.9

6.1

11.6

9.7

Seche

680

12.9

11.6

5.9

5.4

14.1

11.5

Veolia

18,589

11.3

10.3

5.8

5.5

15.2

13.9

Peer average

13.1

11.1

5.8

5.4

15.2

12.1

Renewi

8.1

6.8

3.9

3.5

10.7

9.6

Discount to peers

38%

39%

33%

35%

30%

21%

Source: LSEG, 28 May 2024, Edison Investment Research

Our valuation includes the pension deficit of €13m as per the balance sheet and we continue to adjust for site restoration and aftercare provisions. Renewi forecasts have been calendarised in Exhibit 13 valuation.

Exhibit 13: Peer group-based valuation

EV/EBIT (x)

EV/EBITDA (x)

P/E (x)

2024

2025

2024

2025

2024

2025

Peer average rating (x)

13.1

11.1

5.8

5.4

15.2

12.1

Edison Renewi forecasts* EBIT (€m), EBITDA (€m), EPS (c)

118

140

248

274

69

78

Valuation (€m)

1544

1553

1440

1478

Provisions (€m)

(161)

(161)

(161)

(161)

Debt (€m)

(518)

(539)

(518)

(539)

Pension deficit (€m)

(13)

(13)

(13)

(13)

Market cap (€m)

852

839

748

764

Number of shares (m)

80.0

80.7

80.0

80.7

Value per share (€c)

1065

1040

935

947

1,056

943

Exchange rate (€/£)

1.15

1.15

1.15

1.15

1.15

1.15

Value per share (p)

926

904

813

824

918

820

Provision adjustment (€m)

(161)

(161)

Value per share (p)

926

904

813

824

757

659

Source: Edison Investment Research. Note: *Forecasts have been calendarised.

Exiting the Municipal business removes significant onerous contract provisions from the balance sheet, which, adjusted for, had proved to be a drag on our valuation. Our peer group valuation averages 845p, up from 578p (+46.1%), This is also highlighted in Exhibit 12 with the shares trading at an average discount of 33% to peers.

Exhibit 14: Financial summary

€m

2022

2023

2024

2025e

2026e

Year to March (€m)

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

1,869.2

1,703.9

1,689.2

1,750.9

1,825.4

Cost of Sales

(1,512.5)

(1,385.3)

(1,351.2)

(1,418.2)

(1,478.6)

Gross Profit

356.7

318.6

338.0

332.7

346.8

EBITDA

261.5

255.8

235.5

252.6

280.7

Operating profit (before amort. and excepts.)

133.6

131.7

105.5

122.0

145.9

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

116.0

139.9

Net Interest

(28.8)

(26.8)

(38.0)

(40.9)

(54.1)

Joint ventures & associates (post tax)

0.5

0.3

0.5

0.5

0.5

Profit Before Tax (norm)

105.3

105.2

68.0

81.6

92.3

Profit Before Tax (reported)

95.7

115.0

60.1

75.6

86.3

Reported tax

(20.3)

(29.0)

(14.9)

(18.8)

(21.4)

Profit After Tax (norm)

78.8

74.4

48.4

59.7

67.5

Profit After Tax (reported)

75.4

86.0

45.2

56.8

64.8

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

56.7

64.5

Av. Shares outstanding (m)

79.7

80.3

80.0

80.7

81.0

EPS - normalised (c)

98

89

61

70

80

EPS - normalised fully diluted (c)

98

89

61

70

79

EPS - basic reported (c)

93

79

(43)

67

76

Dividend (c)

0.0

0.0

5.0

10.0

12.5

EBITDA Margin (%)

14.0

15.0

13.9

14.4

15.4

Normalised Operating Margin

7.1

7.7

6.2

7.0

8.0

BALANCE SHEET

Fixed Assets

1,566

1,686

1,562

1,567

1,568

Intangible Assets

593

636

634

628

623

Tangible and Right-of-use Assets

767

871

873

883

889

Investments & other

206

179

56

56

56

Current Assets

386

399

494

485

502

Stocks

23

25

23

24

25

Debtors

269

290

246

255

271

Cash & cash equivalents

64

63

79

60

60

Other

31

22

146

146

146

Current Liabilities

(733)

(665)

(637)

(626)

(642)

Creditors

(528)

(522)

(474)

(484)

(500)

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)

(1,257)

(1,238)

Long term borrowings

(519)

(682)

(574)

(749)

(735)

Other long term liabilities

(362)

(391)

(531)

(508)

(503)

Net Assets

338

347

314

169

189

Minority interests

(7)

(10)

(13)

(13)

(13)

Shareholders' equity

331

337

301

156

176

CASH FLOW

Operating Cash Flow

261.5

255.8

235.5

252.6

280.7

Working capital

(59.9)

(23.8)

4.8

(0.3)

(0.8)

Exceptional & other

(17.1)

(23.6)

(35.3)

(35.3)

(17.3)

Tax

(7.6)

(21.2)

(36.3)

(21.9)

(24.8)

Net operating cash flow

176.9

187.2

168.7

195.1

237.8

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)

(41.2)

(54.4)

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

42.4

69.4

Opening net debt/(cash)

343.7

303.1

370.7

368.2

541.1

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 net debt/(cash)

303.1

370.7

368.2

541.1

527.0

Finance Leases (FRS16)

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

789.0

774.9

Source: Renewi accounts, Edison Investment Research

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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. 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 (i.e. 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.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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United States

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Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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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Research: Healthcare

IRLAB Therapeutics — Valuation uplift supported by IRL757

IRLAB Therapeutics is swiftly progressing with the Phase I trial for IRL757, with the first participant recently dosed following regulatory approval earlier this month. IRL757 is being developed for the treatment of apathy, a common symptom in neurological conditions such as Parkinson’s disease (PD) and Alzheimer’s disease (AD), but with limited treatment options. The Phase I study will include two parts – with single and multiple ascending doses – which IRLAB plans to complete within CY24. The clinical programme has been de-risked in terms of funding to proof-of-concept (PoC) with backing from the MJFF and MSRD. We update our valuation to reflect the potential contribution from IRL757 (with a conservative peak penetration of 5% and a probability of success of 7.5%). We also note IRLAB has drawn down the remaining SEK25m from the SEK50m debt facility, which we were already reflecting in our model. With these updates, our valuation rises to SEK4.56bn or SEK87.9/share, from SEK4.25bn or SEK81.9/share previously.

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