Renewi — Exit from Canada announced

Renewi (LSE: RWI)

Last close As at 21/11/2024

GBP5.81

−29.00 (−4.75%)

Market capitalisation

GBP469m

More on this equity

Research: Industrials

Renewi — Exit from Canada announced

Selling the Canadian Municipal operations is consistent with Renewi’s strategy of simplifying its business portfolio and deleveraging the balance sheet. The completion of this transaction and possibly one other that has been flagged will allow investors to focus on the company’s positions, operational improvements and growth aspirations for its core markets. Progress here is likely to be reflected in a re-rating in our view.

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Industrials

Renewi

Exit from Canada announced

Disposal

Industrial support services

19 June 2019

Price

34.3p

Market cap

£275m

£/€1.12

Core group ongoing net debt (ex-PPP/PFI finance, €m) at end March 2019

552

Shares in issue

800.1m

Free float

99.5%

Code

RWI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.2)

53.7

(60.1)

Rel (local)

(6.0)

51.4

(58.6)

52-week high/low

81.2p

21.9p

Business description

Renewi is a waste-to-product company with operations primarily in the Netherlands, Belgium and the UK and was formed from the merger between Shanks Group and Van Gansewinkel Group in 2017. Its activities span the collection, processing and resale of industrial, hazardous and municipal waste.

Next event

FY19 final DPS 0.5p ex dividend

27 June 2019

AGM

11 July 2019

FY19 final DPS to be paid

26 July 2019

Analyst

Toby Thorrington

+44 (0)20 3077 5721

Renewi is a research client of Edison Investment Research Limited

Selling the Canadian Municipal operations is consistent with Renewi’s strategy of simplifying its business portfolio and deleveraging the balance sheet. The completion of this transaction and possibly one other that has been flagged will allow investors to focus on the company’s positions, operational improvements and growth aspirations for its core markets. Progress here is likely to be reflected in a re-rating in our view.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

03/18

1,760.3

63.0

5.9

3.5

6.9

8.6

03/19

1,780.7

63.1

6.0

1.7

6.7

4.2

03/20e

1,833.5

49.7

4.7

1.7

8.6

4.2

03/21e

1,890.3

71.5

6.8

2.7

5.9

6.8

Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items. Canada Municipal excluded.

Bringing greater focus on core operations

The prospective disposal of the Canada Municipal operations was referenced by management at the end of FY19. The 17 June announcement represents a swift crystallisation of this intention with the proposed sale to Convent Capital, subject to change of control approval from the customer base. This move provides a clean exit from Canada (where the former Shanks Group had operated since 2007) and the Municipal division now solely comprises UK operations. (Note that this was already effectively the case in our estimates given that Canada was classified as discontinued with the FY19 results.) Separately, we assume that other discussions are still progressing with regard to Reym (part of the Hazardous Waste division), although no further update was provided on this.

Favourable leverage effect

Subject to expected completion by the end of September, the terms include initial consideration of c €56m in cash (and we believe that c €4m finance leases are also attached to the operations). On this basis, Renewi flags an associated disposal loss of c €12m; this could effectively be offset by potential deferred consideration and other recoveries of the same amount, which are substantially dependent on the new owner securing additional project financing. Allowing for a small capex reduction also, our end-FY20 core net debt projection (excluding deferred receipts) is now c €527m, equivalent to c 3x EBITDA in the year. The transaction brings a small benefit to earnings estimates via a reduced P&L net interest charge

Valuation: Newsflow driving upside

Renewi’s share price has rallied well from the lows seen in March and is marginally ahead ytd, although it is some way from levels seen a year ago. Incorporating modestly higher earnings estimates, Renewi’s P/E rating is at similar levels to our post-FY19 results note at 8.6x, while the EV/EBITDA (adjusted for pensions cash) has reduced to 5.0x. The initial share price response to the disposal announcement was favourable; successfully concluding this disposal and that of Reym, together with robust trading newsflow, should support further improvement in the share price in our view.

Exhibit 1: Financial summary

m's

2012

2013

2014

2015

2016

2017

2018

2018

2019

2020e

2021e

2022e

March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

 

Sterling

Sterling

Sterling

Sterling

Sterling

Sterling

Sterling

Euros

Euros

Euros

Euros

Euros

Revenue

 

 

750.1

614.6

633.4

601.4

614.8

779.2

1,565.7

1,760.3

1,780.7

1,833.5

1,890.3

1,927.1

Cost of Sales

 

 

(622.9)

(511.6)

(528.3)

(506.1)

(517.8)

(653.3)

(1,276.9)

(1,419.2)

(1,470.4)

(1,501.6)

(1,548.2)

(1,578.3)

Gross Profit

 

 

127.2

103.0

105.1

95.3

97.0

125.9

288.8

341.1

310.3

331.9

342.1

348.8

EBITDA

 

 

105.0

88.4

88.5

72.6

69.2

81.6

156.9

176.3

179.7

173.9

194.3

200.8

Optg Profit (before GW and except.)

53.4

44.9

45.6

34.3

33.4

36.5

69.1

82.5

85.5

78.2

97.1

102.1

Net Interest

 

 

(10.8)

(10.8)

(12.6)

(11.4)

(11.2)

(10.3)

(14.2)

(15.0)

(14.4)

(19.5)

(16.5)

(16.0)

Other Finance

 

 

(6.4)

(3.9)

(2.9)

(1.5)

(1.6)

(2.2)

(5.1)

(7.1)

(8.4)

(9.0)

(9.0)

(9.0)

JV/Associates

 

 

0.1

0.3

0.3

0.8

1.0

2.0

2.3

2.6

0.4

0.0

0.0

0.0

Intangible Amortisation

 

 

(3.7)

(2.5)

(2.3)

(1.9)

(1.8)

(2.1)

(5.8)

(6.7)

(6.4)

(6.4)

(6.4)

(6.4)

Non-Trading & Exceptional Items

 

 

(2.9)

(37.8)

(20.2)

(40.3)

(21.8)

(85.0)

(95.7)

(108.4)

(145.1)

(37.0)

0.0

0.0

Profit Before Tax (Edison norm)

 

36.3

30.5

30.4

22.2

21.6

26.0

52.1

63.0

63.1

49.7

71.5

77.1

Pension net finance costs

 

 

0.2

(0.3)

(0.3)

(0.5)

(0.5)

(0.3)

(0.6)

0.0

0.0

0.0

0.0

(0.6)

Profit Before Tax (Renewi norm)

 

36.5

30.2

30.1

21.7

21.1

25.7

51.5

63.0

63.1

49.7

71.5

76.5

Profit Before Tax (statutory)

 

 

29.9

(10.1)

7.6

(20.5)

(2.5)

(61.4)

(50.0)

(52.8)

(89.0)

5.7

64.5

70.1

Tax - headline

 

 

(4.2)

(1.1)

(5.8)

2.3

(1.5)

0.5

2.6

1.4

12.4

(12.2)

(17.2)

(18.5)

Profit After Tax (norm)

 

 

26.6

22.8

23.2

20.5

19.3

20.1

39.1

47.2

47.5

37.5

54.4

58.6

Profit After Tax

 

 

25.7

(11.2)

1.8

(18.2)

(4.0)

(60.9)

(47.4)

(51.5)

(76.6)

(6.5)

47.4

51.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding (m)

 

448.0

448.3

448.9

449.1

449.5

536.3

799.9

799.9

796.7

796.7

796.7

796.7

EPS - Edison norm (p/c) FD

 

 

5.9

5.1

5.1

4.5

4.3

3.7

4.9

5.9

6.0

4.7

6.8

7.3

EPS - Renewi norm (p/c) FD

 

 

6.0

5.0

5.1

4.4

4.2

3.7

4.8

5.4

6.0

4.6

6.7

7.3

EPS - (p/c)

 

 

5.7

(7.9)

(6.3)

(3.8)

(0.9)

(11.4)

(5.9)

(6.8)

(11.7)

(0.9)

5.9

6.4

Dividend per share (p/c)

 

 

3.05

3.05

3.05

3.05

3.05

3.05

3.05

3.46

1.68

1.68

2.73

2.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Margin (%)

 

 

17.0

16.8

16.6

15.9

15.8

16.2

18.4

19.4

17.4

18.1

18.1

18.1

EBITDA Margin (%)

 

 

14.0

14.4

14.0

12.1

11.3

10.5

10.0

10.0

10.1

9.5

10.3

10.4

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

7.1

7.3

7.2

5.7

5.4

4.7

4.4

4.7

4.8

4.3

5.1

5.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

751.6

772.1

744.4

737.3

670.4

1,420.9

1,456.3

1,669.2

1,439.6

1,450.1

1,458.8

1,466.0

Intangible Assets

 

 

271.4

251.8

211.1

173.8

194.5

603.3

606.3

699.3

605.6

596.9

585.9

574.9

Tangible Assets

 

 

390.9

375.3

322.7

282.9

297.0

587.4

623.0

710.8

629.1

648.3

668.0

686.2

Investments

 

 

89.3

145.0

210.6

280.6

178.9

230.2

227.0

259.1

204.9

204.9

204.9

204.9

Current Assets

 

 

233.6

247.3

265.1

224.0

177.0

348.2

366.2

418.0

533.3

460.4

483.6

487.5

Stocks

 

 

10.5

11.0

9.4

6.9

6.8

19.9

23.3

26.6

26.0

26.6

27.4

27.9

Debtors

 

 

163.3

160.9

151.5

156.3

135.5

253.4

279.0

318.4

456.9

383.5

390.5

395.4

Cash

 

 

59.8

75.4

104.2

60.8

34.7

74.9

63.9

73.0

50.4

50.4

65.7

64.1

Current Liabilities

 

 

(238.7)

(248.9)

(229.6)

(277.4)

(227.2)

(483.2)

(545.8)

(631.0)

(758.3)

(717.0)

(717.7)

(694.3)

Creditors

 

 

(226.5)

(230.7)

(226.3)

(202.4)

(224.8)

(466.8)

(532.9)

(616.3)

(639.6)

(623.8)

(624.5)

(631.1)

Short term borrowings

 

 

(12.2)

(18.2)

(3.3)

(75.0)

(2.4)

(16.4)

(12.9)

(14.7)

(118.7)

(93.2)

(93.2)

(63.2)

Long Term Liabilities

 

 

(375.9)

(444.2)

(504.7)

(432.5)

(434.2)

(845.7)

(894.3)

(1,019.9)

(895.1)

(894.0)

(892.8)

(891.7)

Long term borrowings

 

 

(253.8)

(234.5)

(253.8)

(140.8)

(224.9)

(482.4)

(489.7)

(558.9)

(483.7)

(483.7)

(483.7)

(483.7)

Other long-term liabilities

 

 

(122.1)

(209.7)

(250.9)

(291.7)

(209.3)

(363.3)

(404.6)

(461.0)

(411.4)

(410.3)

(409.1)

(408.0)

Net Assets

 

 

370.6

326.3

275.2

251.4

186.0

440.2

382.4

436.3

319.5

299.6

331.9

367.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Cash Flow

 

 

109.9

67.7

78.6

55.8

72.2

27.9

128.4

143.6

86.8

123.2

176.3

191.2

Net Interest

 

 

(13.4)

(11.5)

(13.2)

(12.8)

(12.8)

(19.0)

(16.9)

(19.1)

(17.7)

(19.5)

(16.5)

(16.0)

Tax

 

 

(7.1)

1.9

(1.6)

(5.7)

(4.8)

(5.3)

(6.7)

(7.6)

(13.2)

(12.2)

(17.2)

(18.5)

Net Capex

 

 

(74.8)

(50.1)

(27.1)

(37.2)

(25.8)

(41.2)

(81.2)

(92.3)

(99.4)

(112.6)

(112.3)

(112.3)

Acquisitions/disposals

 

 

(19.6)

(59.2)

(54.1)

(67.3)

18.2

39.5

(4.1)

(4.8)

22.7

56.0

0.0

0.0

Equity Financing

 

 

0.0

0.4

0.2

0.1

0.3

136.5

0.6

0.6

(2.7)

0.0

(0.0)

0.0

Dividends

 

 

(13.3)

(13.7)

(13.7)

(13.7)

(13.7)

(15.1)

(24.4)

(27.6)

(27.4)

(13.5)

(15.0)

(15.9)

Net Cash Flow

 

 

(18.3)

(64.5)

(30.9)

(80.8)

33.6

123.3

(4.3)

(7.3)

(50.9)

21.5

15.3

28.4

Opening core net debt/(cash)

 

 

207.4

206.2

177.3

152.9

155.0

192.6

423.9

492.7

500.0

552.0

526.5

511.2

HP finance leases

 

 

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

 

 

19.5

93.4

55.3

78.7

(71.2)

(354.6)

(10.5)

(0.0)

(1.3)

4.0

0.0

0.0

Closing core net debt/ (cash)

 

 

206.2

177.3

152.9

155.0

192.6

423.9

438.7

500.0

552.2

526.5

511.2

482.7

Closing PPP/PFI non-recourse net debt

 

52.0

100.1

151.2

222.6

91.1

87.1

82.9

94.6

95.4

95.4

95.4

95.4

Source: Company accounts, Edison Investment Research

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This report has been commissioned by Renewi and prepared and issued by Edison, in consideration of a fee payable by Renewi. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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This report has been commissioned by Renewi and prepared and issued by Edison, in consideration of a fee payable by Renewi. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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