Renewi — In-line trading update

Renewi (LSE: RWI)

Last close As at 15/04/2024

GBP5.86

−3.00 (−0.51%)

Market capitalisation

GBP475m

More on this equity

Research: Industrials

Renewi — In-line trading update

Having reported good progress in the seasonally stronger H1, Renewi’s latest update for H2 to date reaffirms management expectations for the year. Importantly, the merger integration programme is very much on track and the next significant phases are underway. A UK Municipal contract review has been flagged, but our estimates are unchanged in all respects ahead of more detailed year-end update commentary. Share price weakness has brought forward valuation attractions, in our view.

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Industrials

Renewi

In-line trading update

Trading update

Industrial support services

15 February 2018

Price

92.5p

Market cap

£740m

€1.13/£

Net debt (£m) at September 2017
Core group net debt (ex PPP/PFI finance)

436

Shares in issue

799.8m

Free float

99.5%

Code

RWI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(13.4)

(8.9)

(0.8)

Rel (local)

(6.8)

(6.5)

(1.0)

52-week high/low

108.2p

80.0p

Business description

Renewi is a waste-to-product company with operations primarily in the UK, the Netherlands and Belgium. Its activities span the collection, processing and resale of industrial, hazardous and municipal waste.

Next events

FY18 year-end trading update

March 2018 tbc

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

Having reported good progress in the seasonally stronger H1, Renewi’s latest update for H2 to date reaffirms management expectations for the year. Importantly, the merger integration programme is very much on track and the next significant phases are underway. A UK Municipal contract review has been flagged, but our estimates are unchanged in all respects ahead of more detailed year-end update commentary. Share price weakness has brought forward valuation attractions, in our view.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/16

614.8

21.6

4.3

3.1

21.5

3.3

03/17

779.2

26.0

3.7

3.1

25.0

3.3

03/18e

1,531.4

51.0

4.8

3.1

19.2

3.3

03/19e

1,554.3

70.6

6.6

3.1

14.0

3.3

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

Focusing on operational improvements

Overall group trading performance so far in the second half has met management expectations. Similarly, each of the four divisions appears to be demonstrating their usual seasonal characteristics, with operational improvements a key focus. At the same time they have also shown an ability to cope with some adverse market developments (eg soil treatment volume reduction, reduced waste export to China) while also moving forward through the integration programme, commissioning a new Canadian Municipal facility and extending the glass recycling JV (Maltha). The company has given early notification of onerous contract reviews regarding UK Municipal operations. The outcome of this will be known before the year end and the extent of any related exceptional items may or may not be partly offset by lower than expected FY18 integration costs incurred.

Integration progressing, contract reviews pending

We are reminded that FY18 integration benefits will be at least in line with the €12m flagged for the year and there is no change on guidance for a total expected €40m annualised benefits by FY20. Moving the Commercial division operations onto common IT platforms is a significant workstream for FY19, with region-by-region roll-out expected to commence during the year. Our estimates are unchanged in all respects at this stage. UK Municipal onerous contract reviews are likely to result in modest underlying estimate changes in due course and we will address this when more detail is available at the year end.

Valuation: Reasonable value, benefits to come

Renewi’s share price has eased back along with the wider UK equity market since the middle of January and now sits towards the lower end of its six-month trading range (93p-108p). While not immune to cyclical trends, the company’s significant exposure to growing European economies and with sizeable internal integration gains to come should be a relative attraction to investors in our view. On our estimates the FY19e P/E has fallen to 14.0x with an EV/EBITDA multiple (adjusted for pensions cash) of 6.8x already representing reasonable value on a nearer-term horizon.

Exhibit 1: Financial summary

£m

2011

2012

2013

2014

2015

2016

2017

2018e

2019e

2020e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

717.3

750.1

614.6

633.4

601.4

614.8

779.2

1,531.4

1,554.3

1,588.4

Cost of Sales

 

 

(601.9)

(622.9)

(511.6)

(528.3)

(506.1)

(517.8)

(653.3)

(1,263.4)

(1,282.3)

(1,310.4)

Gross Profit

 

 

115.4

127.2

103.0

105.1

95.3

97.0

125.9

268.0

272.0

278.0

EBITDA

 

 

100.0

105.0

88.4

88.5

72.6

69.2

81.6

161.2

184.8

199.8

Operating Profit (before GW and except.)

49.7

53.4

44.9

45.6

34.3

33.4

36.5

71.4

94.0

108.0

Net Interest

 

 

(14.2)

(10.8)

(10.8)

(12.6)

(11.4)

(11.2)

(10.3)

(19.9)

(23.0)

(21.0)

Other Finance

 

 

(0.3)

(6.4)

(3.9)

(2.9)

(1.5)

(1.6)

(2.2)

(2.6)

(2.6)

(2.6)

JV/Associates

 

 

0.0

0.1

0.3

0.3

0.8

1.0

2.0

2.1

2.2

2.3

Intangible Amortisation

 

 

(3.9)

(3.7)

(2.5)

(2.3)

(1.9)

(1.8)

(2.1)

(5.8)

(5.8)

(5.8)

Non-Trading & Exceptional Items 

 

(10.1)

(2.7)

(38.1)

(20.5)

(40.8)

(22.3)

(85.3)

(30.0)

(25.9)

(9.9)

Profit Before Tax (norm)

 

 

35.2

36.3

30.5

30.4

22.2

21.6

26.0

51.0

70.6

86.7

Profit Before Tax (FRS 3)

 

 

21.2

29.9

(10.1)

7.6

(20.5)

(2.5)

(61.4)

15.2

38.9

71.0

Tax - headline

 

 

0.7

(4.2)

(1.1)

(5.8)

2.3

(1.5)

0.5

(11.0)

(17.7)

(21.7)

Profit After Tax (norm)

 

 

25.9

26.6

22.8

23.2

20.5

19.3

20.1

38.3

53.0

65.0

Profit After Tax (FRS 3)

 

 

21.9

25.7

(11.2)

1.8

(18.2)

(4.0)

(60.9)

4.3

21.3

49.3

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m) 

448.0

448.0

448.3

448.9

449.1

449.5

536.3

799.8

799.8

799.8

EPS - normalised (p)

 

 

5.8

5.9

5.1

5.1

4.5

4.3

3.7

4.8

6.6

8.1

EPS - FRS 3 (p)

 

 

4.9

5.7

(7.9)

(6.3)

(3.8)

(0.9)

(11.4)

0.6

2.6

6.1

Dividend per share (p)

 

 

2.88

3.05

3.05

3.05

3.05

3.05

3.05

3.05

3.05

3.45

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

16.1

17.0

16.8

16.6

15.9

15.8

16.2

17.5

17.5

17.5

EBITDA Margin (%)

 

 

13.9

14.0

14.4

14.0

12.1

11.3

10.5

10.5

11.9

12.6

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

6.9

7.1

7.3

7.2

5.7

5.4

4.7

4.7

6.0

6.8

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

767.9

751.6

772.1

744.4

737.3

670.4

1,420.9

1,464.8

1,457.7

1,451.0

Intangible Assets

 

 

289.6

271.4

251.8

211.1

173.8

194.5

603.3

584.6

579.0

568.4

Tangible Assets

 

 

397.5

390.9

375.3

322.7

282.9

297.0

587.4

647.2

645.7

649.6

Investments

 

 

80.8

89.3

145.0

210.6

280.6

178.9

230.2

233.0

233.0

233.0

Current Assets

 

 

244.1

233.6

247.3

265.1

224.0

177.0

348.2

362.1

367.2

371.9

Stocks

 

 

9.9

10.5

11.0

9.4

6.9

6.8

19.9

18.7

18.3

18.6

Debtors

 

 

179.7

163.3

160.9

151.5

156.3

135.5

253.4

270.4

275.9

280.3

Cash

 

 

54.5

59.8

75.4

104.2

60.8

34.7

74.9

73.0

73.0

73.0

Current Liabilities

 

 

(276.4)

(238.7)

(248.9)

(229.6)

(277.4)

(227.2)

(483.2)

(465.3)

(467.5)

(441.7)

Creditors

 

 

(237.1)

(226.5)

(230.7)

(226.3)

(202.4)

(224.8)

(466.8)

(452.0)

(452.5)

(453.8)

Short term borrowings

 

 

(39.3)

(12.2)

(18.2)

(3.3)

(75.0)

(2.4)

(16.4)

(13.3)

(15.0)

12.1

Long Term Liabilities

 

 

(338.2)

(375.9)

(444.2)

(504.7)

(432.5)

(434.2)

(845.7)

(927.4)

(926.3)

(925.2)

Long term borrowings

 

 

(222.6)

(253.8)

(234.5)

(253.8)

(140.8)

(224.9)

(482.4)

(555.1)

(555.1)

(555.1)

Other long term liabilities

 

 

(115.6)

(122.1)

(209.7)

(250.9)

(291.7)

(209.3)

(363.3)

(372.3)

(371.2)

(370.1)

Net Assets

 

 

397.4

370.6

326.3

275.2

251.4

186.0

440.2

434.2

431.1

456.0

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

99.4

109.9

67.7

78.6

55.8

72.2

27.9

98.1

150.8

183.1

Net Interest

 

 

(9.3)

(13.4)

(11.5)

(13.2)

(12.8)

(12.8)

(19.0)

(24.0)

(23.0)

(21.0)

Tax

 

 

(4.1)

(7.1)

1.9

(1.6)

(5.7)

(4.8)

(5.3)

(9.0)

(15.7)

(19.7)

Net Capex

 

 

(67.3)

(74.8)

(50.1)

(27.1)

(37.2)

(25.8)

(41.2)

(99.0)

(89.5)

(90.9)

Acquisitions/disposals

 

 

2.5

(19.6)

(59.2)

(54.1)

(67.3)

18.2

39.5

0.0

0.0

0.0

Equity Financing

 

 

0.1

0.0

0.4

0.2

0.1

0.3

136.5

0.1

0.0

0.0

Dividends

 

 

(11.9)

(13.3)

(13.7)

(13.7)

(13.7)

(13.7)

(15.1)

(24.4)

(24.4)

(24.4)

Net Cash Flow

 

 

9.4

(18.3)

(64.5)

(30.9)

(80.8)

33.6

123.3

(58.1)

(1.7)

27.1

Opening core net debt/(cash) 

 

319.7

207.4

206.2

177.3

152.9

155.0

192.6

423.9

495.4

497.1

HP finance leases initiated

 

 

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

 

 

102.9

19.5

93.4

55.3

78.7

(71.2)

(354.6)

(13.4)

(0.0)

(0.0)

Closing core net debt/(cash)

 

 

207.4

206.2

177.3

152.9

155.0

192.6

423.9

495.4

497.1

470.0

Closing PPP/PFI non-recourse net debt 

0.0

52.0

100.1

151.2

222.6

91.1

87.1

84.8

84.8

84.8

Source: Renewi 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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