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Research: Industrials
A positive full-year trading update from Renewi pointed to a management FY21 (to March) EBIT expectation of €68m versus an existing consensus of around €55m. Our estimates are now in line with this, after increasing the Commercial division contribution. We have made no changes to other years at this stage, although there should be downward pressure on finance costs given the cash performance, but earnings still show some progression beyond FY21. Renewi has a well-explained strategy for increasing profitability over the next three years and remains very well positioned in its markets, which are at the centre of the circular economy.
Written by
Renewi |
Upgrades driven by Commercial waste division |
Q4 update |
Industrial support services |
17 March 2021 |
Share price performance
Business description
Next events
Analyst
Renewi is a research client of Edison Investment Research Limited |
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A positive full-year trading update from Renewi pointed to a management FY21 (to March) EBIT expectation of €68m versus an existing consensus of around €55m. Our estimates are now in line with this, after increasing the Commercial division contribution. We have made no changes to other years at this stage, although there should be downward pressure on finance costs given the cash performance, but earnings still show some progression beyond FY21. Renewi has a well-explained strategy for increasing profitability over the next three years and remains very well positioned in its markets, which are at the centre of the circular economy.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
03/19 |
1,780.7 |
63.1 |
6.0 |
1.7 |
9.2 |
3.0 |
03/20 |
1,775.4 |
54.3 |
5.4 |
0.5 |
11.0 |
0.9 |
03/21e |
1,627.1 |
39.2 |
3.6 |
0.0 |
15.2 |
N/A |
03/22e |
1,691.3 |
46.4 |
4.3 |
0.0 |
12.8 |
N/A |
03/23e |
1,754.5 |
69.8 |
6.6 |
0.6 |
8.4 |
1.0 |
Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items. FY20- are on an IFRS 16 basis.
Favourable market trends in Commercial waste
At the time of the Q3 update (1 February) full-year expectations were affirmed and so far in Q4 an ongoing positive mix effect (higher levels of construction/bulky waste) and another step up in recyclate pricing (especially paper and steel) appear to be the primary trading drivers behind the raised guidance. With the caveat that March is the most important month of the quarter and is still to be booked, waste volumes in the first two months of Q4 have settled back slightly in the Netherlands (at 96% of prior year versus 98% in Q3) and firmed in Belgium (95% versus 92%). There are no other material changes to trading commentary, meaning that we infer ATM is still plugging away at achieving permits for its thermally treated soil but this has not translated to shipments yet.
Significant y-o-y net debt reduction confirmed
Expected year-end core net debt (pre IFRS 16) below €350m is a further positive step. Data points in FY21 to date have indicated significant reductions already, from c €460m at the end of FY20 (September €381m, December €323m). Management had flagged some natural increase from the December level but the extent is more subdued than anticipated. The absence of ATM soil shipments will have aided working capital performance but otherwise management appears to have been overly cautious previously. Note that the FY21 debt figures quoted will have benefitted from COVID-19-related tax payment deferrals of c €60m, which are to flow out over a three-year period, starting from October.
Valuation: Well placed
Renewi’s share price has now risen by c 7% YTD and c 23% on a 12-month view, backed by improving trading and cash flow updates. As a result, the closing year P/E and EV/EBITDA have increased to 15.2x and 5.5x respectively. While there is understandable caution generally about the economic growth outlook as the direct pandemic effects recede, Renewi is undoubtedly well positioned in its markets.
Exhibit 1: Financial summary
€m |
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 |
1,627.1 |
1,691.3 |
1,754.5 |
Cost of Sales |
|
|
(1,276.9) |
(1,419.2) |
(1,470.4) |
(1,467.5) |
(1,350.5) |
(1,399.6) |
(1,447.5) |
Gross Profit |
|
|
288.8 |
341.1 |
310.3 |
307.9 |
276.6 |
291.7 |
307.0 |
EBITDA |
|
|
156.9 |
176.3 |
179.7 |
167.1 |
149.3 |
159.0 |
182.9 |
Operating Profit (before GW and except.) |
|
69.1 |
82.5 |
85.5 |
87.6 |
68.3 |
76.5 |
98.9 |
|
Net Interest |
|
|
(14.2) |
(15.0) |
(14.4) |
(18.5) |
(17.5) |
(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) |
(33.2) |
(10.0) |
(6.0) |
Profit Before Tax (Edison norm) |
|
|
52.1 |
63.0 |
63.1 |
54.3 |
39.2 |
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 |
39.4 |
46.4 |
69.8 |
Profit Before Tax (statutory) |
|
|
(50.0) |
(52.8) |
(89.0) |
(59.4) |
2.8 |
33.0 |
60.4 |
Tax - headline |
|
|
2.6 |
1.4 |
12.4 |
(1.1) |
(6.8) |
(11.1) |
(16.8) |
Profit After Tax (norm) |
|
|
39.1 |
47.2 |
47.5 |
41.0 |
29.6 |
35.3 |
53.1 |
Profit After Tax |
|
|
(47.4) |
(51.5) |
(76.6) |
(60.5) |
(4.0) |
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 |
3.6 |
4.3 |
6.6 |
EPS - Renewi norm (p/c) FD |
|
|
4.8 |
5.4 |
6.0 |
5.4 |
3.7 |
4.3 |
6.6 |
EPS - (p/c) |
|
|
(5.9) |
(6.8) |
(11.7) |
(9.8) |
(0.6) |
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 |
9.2 |
9.4 |
10.4 |
Operating Margin (before GW and except.) (%) |
|
4.4 |
4.7 |
4.8 |
4.9 |
4.2 |
4.5 |
5.6 |
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
Fixed Assets |
|
|
1,456.3 |
1,669.2 |
1,439.6 |
1,616.8 |
1,557.4 |
1,558.8 |
1,563.7 |
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 |
757.4 |
766.3 |
778.7 |
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 |
437.3 |
433.2 |
455.2 |
Stocks |
|
|
23.3 |
26.6 |
26.0 |
20.7 |
19.0 |
19.7 |
20.4 |
Debtors |
|
|
279.0 |
318.4 |
456.9 |
288.1 |
263.4 |
271.9 |
280.3 |
Cash |
|
|
63.9 |
73.0 |
50.4 |
194.5 |
154.9 |
141.6 |
154.5 |
Current Liabilities |
|
|
(545.8) |
(631.0) |
(758.3) |
(635.2) |
(626.3) |
(628.4) |
(637.8) |
Creditors |
|
|
(532.9) |
(616.3) |
(639.6) |
(618.4) |
(612.6) |
(614.7) |
(624.1) |
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 |
219.2 |
241.1 |
284.8 |
|
|
|
|
|
|
|
|
|
|
CASH FLOW |
|
|
|
|
|
|
|
|
|
Operating Cash Flow |
|
|
128.4 |
143.6 |
86.8 |
167.8 |
212.2 |
143.0 |
174.7 |
Net Interest |
|
|
(16.9) |
(19.1) |
(17.7) |
(27.0) |
(23.9) |
(24.4) |
(23.4) |
Tax |
|
|
(6.7) |
(7.6) |
(13.2) |
(10.1) |
(10.5) |
(9.6) |
(11.1) |
Net Capex |
|
|
(81.2) |
(92.3) |
(99.4) |
(73.4) |
(54.9) |
(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 |
125.0 |
21.7 |
47.9 |
Opening core net debt/(cash) |
|
|
423.9 |
492.7 |
500.0 |
552.0 |
457.2 |
362.5 |
375.8 |
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 |
362.5 |
375.8 |
362.9 |
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. **Excludes shares held by employee share trust.
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Research: TMT
Centaur’s FY20 results are a shade ahead of our forecast and show a resilient performance considering the impact of the pandemic. Q1 trading to date is in line, in what is generally the quietest quarter for revenues with no scheduled events or Mini MBA courses, and cash at end February was £8.2m (IFRS liabilities only). The group is now reinstating dividend payments and will pay 0.5p for FY20, with a minimum payment of 1.0p set out for future years. Centaur’s MAP23 strategy, laid out in January, gives the framework and impetus for revenue growth and improving profitability, which should in turn drive an increasing valuation.