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TXT e-solutions — Expansion continues through a difficult year

TXT e-solutions (Euronext STAR Milan: TXT)

Last close As at 04/11/2024

9.88

▲ −0.06 (−0.60%)

Market capitalisation

129m

More on this equity

Research: TMT

TXT e-solutions — Expansion continues through a difficult year

Despite a tough year, TXT reported organic revenue and EBITDA growth and acquired two profitable fintech businesses. To deal with COVID-19 restrictions, management quickly shifted operations to remote working, which will now be a permanent feature. From a demand perspective, long-term contracts and a focus on sectors less hit by the pandemic have helped support the business. TXT is now positioned to benefit as hard-hit sectors gradually see demand return and its earlier-stage fintech investments increasingly win business.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

TXT e-solutions

Expansion continues through a difficult year

FY20 results

Software & comp services

17 March 2021

Price

€6.98

Market cap

€82m

Net cash (€m) at end FY20

22.1

Shares in issue

11.7m

Free float

51%

Code

TXT

Primary exchange

Borsa Italiana (STAR)

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.3)

(5.3)

48.8

Rel (local)

(7.4)

(14.2)

(7.8)

52-week high/low

€8.43

€4.63

Business description

TXT e-solutions provides IT, consulting and R&D services to aerospace, aviation, automotive, banking and finance customers.

Next events

Q121 results

12 May 2021

Analyst

Katherine Thompson

+44 (0)20 3077 5730

TXT e-solutions is a research client of Edison Investment Research Limited

Despite a tough year, TXT reported organic revenue and EBITDA growth and acquired two profitable fintech businesses. To deal with COVID-19 restrictions, management quickly shifted operations to remote working, which will now be a permanent feature. From a demand perspective, long-term contracts and a focus on sectors less hit by the pandemic have helped support the business. TXT is now positioned to benefit as hard-hit sectors gradually see demand return and its earlier-stage fintech investments increasingly win business.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

59.1

7.6

0.46

0.00

15.2

N/A

12/20

68.8

7.1

0.47

0.04

14.9

0.6

12/21e

84.6

8.2

0.51

0.06

13.7

0.9

12/22e

90.0

9.3

0.57

0.08

12.2

1.1

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

FY20 revenue and profit growth

TXT reported 16% revenue growth in FY20, of which 5% was organic. EBITDA grew 22% y-o-y (5% ahead of our forecast; +11% organic), with margin expansion of 0.6pp to 12.5%. Normalised EPS was 33% higher than our estimate through a combination of higher operating profit (5% ahead), higher net finance income and a lower tax rate (20% vs our 28% forecast). The company ended the year with net cash of €22.1m and announced a dividend of €0.04 for the year, payable in May.

Expanding the Fintech business

The Aerospace & Aviation (A&A) business managed to generate 5% organic revenue growth despite COVID-19 reducing demand from certain sectors, helped by TXT’s long-term relationships and shift to unaffected sectors and advanced technologies. The Fintech business benefited from the MAC Solutions and HSPI acquisitions in H2, which combined with the benefits of recent restructuring resulted in a substantial increase in profitability. Post year-end, TXT has made further investments in the fintech space for a total cost of €16m. We have made minimal changes to our FY21 revenue and normalised operating profit forecasts; the buyout of Assiopay minority interests combined with share buy-backs results in an 8.5% increase in our normalised EPS forecast. We introduce FY22 forecasts for 6% revenue growth and 13% normalised EPS growth.

Valuation: Discount to peers

TXT continues to trade at a discount to its peer group on all measures, despite the deployment of a large proportion of the company’s cash balance into fintech acquisitions, and revenue growth and profitability above the group average. Evidence of improving demand in the A&A division and growing revenues from the earlier-stage fintech businesses should help to reduce this discount.

Review of FY20 results

The table summarises group performance for FY20 versus FY19 and our FY20 forecasts.

Exhibit 1: FY20 results highlights

FY19a

FY20e

FY20a

diff

y-o-y

Revenues (€m)

59.1

67.2

68.8

2.3%

16.4%

Gross margin

46.1%

43.9%

42.6%

(1.3%)

(3.6%)

Gross profit (€m)

27.3

29.5

29.3

(0.7%)

7.4%

EBITDA (€m)

7.0

8.1

8.6

5.1%

22.2%

EBITDA margin

11.9%

12.1%

12.5%

0.3%

0.6%

Normalised EBIT (€m)

5.4

6.2

6.5

5.1%

20.9%

Normalised EBIT margin

9.2%

9.3%

9.5%

0.3%

0.4%

Reported operating profit (€m)

3.6

4.5

3.2

(30.0%)

(11.1%)

Normalised net income (€m)

5.3

4.1

5.5

32.8%

2.2%

Reported net income (€m)

0.3

3.5

4.5

29.1%

1324.8%

Normalised EPS (€)

0.46

0.35

0.47

33.4%

2.7%

Reported basic EPS (€)

0.03

0.30

0.38

29.7%

1332.0%

Net cash (€m)

41.4

28.0

22.1

(21.1%)

(46.7%)

Dividend (€)

0.00

0.10

0.04

(60.0%)

N/A

Source: TXT e-solutions, Edison Investment Research

TXT reported revenue growth of 16.4% for FY20, with revenue of €68.8m 2.3% ahead of our forecast. Excluding the €6.5m contribution from the MAC Solutions and HSPI acquisitions, the group grew 5.1% y-o-y. EBITDA increased 22.2% y-o-y and was 5% ahead of our forecast, resulting in an EBITDA margin of 12.5% compared to 11.9% a year ago.

The company reported a number of exceptional items in FY20:

■

a €0.6m charge for restructuring;

■

a €1.3m goodwill write-down relating to TXT Risk Solutions; and

■

a €2.2m financial credit relating to a reduction in earn-out or put/call option provisions.

Net financial income (excluding the one-off credit above) of €0.6m relates to income earned from cash that is invested in multi-segment insurance funds (which are marked to market). As the company has made use of a portion of these funds for recent acquisitions, the lower balance combined with higher volatility has reduced the income compared to the €2.2m reported in FY19.

The company reported a tax rate of 20%, well below our 28% forecast.

Having decided not to pay a dividend for FY19 due to COVID-19 uncertainty, the company has reinstated the dividend for FY20 and will pay a dividend of €0.04 per share in May.

Net cash at year-end was €22.1m, down from €41.4m a year ago. Exhibit 2 shows how this breaks down. Key movements over the year include:

■

payment of earn-outs for Cheleo and PACE: €5.9m (although this had zero impact on net cash, it reduced gross cash and short-term liabilities);

■

acquisition of MAC Solutions and HSPI: €14.1m;

■

a new earn-out put in place for TXT Working Capital Solutions: €2.7m;

■

acquisition of treasury shares: €5.3m;

■

a working capital outflow due to elevated levels of trade receivables at year-end: €7.7m; and

■

operating cash inflow before working capital: €6.7m.

Exhibit 2: TXT e-solutions net financial position

€m

FY19

FY20

Cash & cash equivalents

11.4

11.9

Trading securities at fair value

87.3

68.2

Short-term bank debt

(17.4)

(28.2)

Short-term leases

(1.3)

(1.5)

Short-term earn outs

(6.6)

(1.0)

Long-term bank debt

(23.5)

(18.9)

Long-term lease debt

(4.5)

(3.6)

Long-term earn outs

(4.0)

(4.9)

Net cash

41.4

22.1

Source: TXT e-solutions

Divisional performance

The table below shows divisional revenue performance by type.

Exhibit 3: Divisional revenues, FY19–20

Revenues (€m)

FY20

FY19

y-o-y

Aerospace & Aviation (A&A)

Software licences & maintenance

7.4

5.9

26.7%

Services

33.4

32.9

1.5%

Total

40.8

38.7

5.4%

Fintech

Software licences & maintenance

1.2

1.0

15.9%

Services

26.7

19.3

38.5%

Total

28.0

20.4

37.5%

Software licences & maintenance

8.6

6.9

25.1%

Services

60.1

52.2

15.2%

Total revenues

68.8

59.1

16.3%

Source: TXT e-solutions

A&A: Steady performance despite market turmoil

The A&A division reported growth of 5% y-o-y, all of which was organic. This was despite the backdrop of COVID-19 causing disruption in demand for many of TXT’s customer base, including those in the civil aviation, manufacturing, automotive and transportation sectors. The company benefited from relationships it has developed over many years, where it often has long-term contracts in place; these are compensating for the difficulty in signing up new business. The company also shifted its focus to serve customers in areas that are not negatively affected by COVID-19 (eg defence, cargo airlines) and to provide solutions for advanced technology such as extended reality (XR). With its Pacelab WEAVR XR training solution, TXT was recently selected as a verified solutions partner by Unity Software. Unity is an NYSE-listed software company with the leading platform for creating and operating interactive, real-time 3D content.

The division generated EBITDA of €5.1m (-10% y-o-y), with a margin of 12.5% (down from 14.7% in FY19).

Fintech: Both organic and acquisition-driven growth

The Fintech division reported 37% growth year-on-year, of which 32% (€6.5m) was from the contribution of MAC Solutions (acquired 14 July 2020) and HSPI (acquired 19 October 2020). Excluding acquisitions, the underlying business grew 5% y-o-y. We note that Assioma was acquired on 1 May 2019 and was integrated with the existing TXT software testing business during 2019 making it impossible to disclose the Assioma contribution separately, therefore its contribution is included in organic revenues. Management noted that two of the division’s early-stage businesses – Faraday (part of TXT Risk Solutions) and Polaris (part of TXT Working Capital Solutions) – were loss-making, consuming €1.1m in investment. The division is currently in negotiations with several large potential customers for Faraday’s AML and compliance software and Cheleo’s non-performing loan software. The recent HSPI acquisition has performed well, and the business has already signed several multi-million-euro, multi-year contracts in the public sector since the start of the year.

The division generated EBITDA of €3.5m (+164% y-o-y), with a margin of 12.4% (up from 6.4% in FY19).

Post balance sheet investments

At the end of January, TXT made a €14.3m cash investment in Banca del Fucino SpA for 9% of the share capital (post money). Banca del Fucino is the parent company of Gruppo Bancario Igea Banca, which in turn wholly controls IGEA Digital Bank (IGEA). IGEA is a digital-only bank. Management explained that the rationale for the investment was to seek better returns for the funds that have been invested in multi-segment insurance funds (described as ‘Trading securities at fair value’ in Exhibit 2). The company views this as a two- to three-year investment, with the expectation that the bank will become a publicly listed company, at which point TXT would exit. Management also noted that this investment could increase the company’s contacts within the fintech space, which could be of benefit to its fintech business.

In January, the company noted that it had acquired the remaining 49% of Assiopay for €1.65m, split 50/50 cash/equity.

Outlook and changes to forecasts

So far this year, management continues to find it more difficult to sign new business in those areas most hit by COVID-19 (civil aviation, automotive, industrial), but is compensating for this through its focus on areas such as the defence and public sectors. It is also closely managing its cost base. The company noted that it has made remote working a permanent option for staff, which should help its ability to retain and hire staff after the pandemic.

We have revised our forecasts to take account of FY20 results and to introduce forecasts for FY22. Our FY21 forecasts are substantially unchanged at a normalised level. Reported profitability measures factor in amortisation of acquired intangibles relating to MAC Solutions and HSPI for the first time. We note that there is no longer a minority interest deduction since the company acquired the remaining 49% of Assiopay.

Exhibit 4: Changes to forecasts

FY21e old

FY21e new

change

y-o-y

FY22e new

y-o-y

Revenues (€m)

84.2

84.6

0.5%

23.1%

90.0

6.4%

Gross margin

42.2%

42.0%

(0.2%)

(0.6%)

41.9%

(0.2%)

Gross profit (€m)

35.6

35.6

0.1%

21.5%

37.7

5.9%

EBITDA (€m)

10.5

10.5

(0.8%)

22.1%

11.5

10.5%

EBITDA margin

12.5%

12.4%

(0.2%)

(0.1%)

12.8%

0.5%

Normalised EBIT (€m)

8.3

8.3

0.3%

27.7%

9.4

13.1%

Normalised EBIT margin

9.9%

9.9%

(0.0%)

0.4%

10.5%

0.6%

Reported operating profit (€m)

7.0

6.4

(7.3%)

104.2%

7.5

Normalised net income (€m)

5.6

5.9

5.6%

8.9%

6.7

13.3%

Reported net income (€m)

4.6

4.6

(1.5%)

2.2%

5.4

17.2%

Normalised EPS (€)

0.47

0.51

8.5%

8.4%

0.57

13.1%

Reported basic EPS (€)

0.39

0.39

1.2%

1.7%

0.46

17.1%

Net cash (€m)

30.9

13.9

(55.0%)

(36.9%)

20.2

45.3%

Dividend (€)

0.12

0.06

(50.0%)

50.0%

0.08

33.3%

Source: Edison Investment Research

Valuation

The table below shows TXT’s valuation versus its peer group of European software and services providers. TXT continues to trade at a discount to its peer group on all measures, despite the deployment of a large proportion of the company’s cash balance into fintech acquisitions, and revenue growth and profitability above the group average. In our view, the company’s exposure to the aerospace and aviation market is likely to be weighing on the share price, as is uncertainty over the likely performance of the recent spate of acquisitions. We expect this discount to reduce as TXT provides evidence of:

■

A&A: performance remaining stable at least, until customers in COVID-19-hit sectors feel more confident of their futures and resume/accelerate orders.

■

Fintech: the early-stage businesses (TXT Risk Solutions, TXT Working Capital Solutions) starting to generate material revenues and reaching break-even; banks resuming normal activity for software testing; international revenues growing.

■

Overall, software revenues growing as a percentage of the total, as these generate much higher gross margins.

Exhibit 5: Peer financial and valuation metrics

Company

Share price

Market cap

Rev growth

EBIT margin

EBITDA margin

EV/sales

EV/EBIT

P/E

Dividend yield

€

€m

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

TXT

6.98

82

23.1%

6.4%

9.9%

10.5%

12.4%

12.8%

0.7

0.7

7.2

6.3

13.8

12.2

0.9%

1.1%

European IT services companies

AKKA Technologies

29.15

649

5.8%

6.2%

3.7%

0.8%

7.6%

-5.6%

0.8

0.7

20.6

11.3

31.6

12.7

0.0%

0.4%

Alten

98.20

3,357

7.7%

6.4%

7.5%

8.8%

10.2%

11.2%

1.3

1.2

17.7

14.0

24.4

19.5

1.0%

1.0%

AtoS

64.52

7,081

1.4%

2.8%

8.4%

9.1%

14.2%

15.0%

0.8

0.8

9.7

8.7

9.1

8.2

1.9%

2.3%

Cap Gemini

143.50

24,166

6.5%

5.1%

11.6%

11.9%

15.3%

15.6%

1.8

1.8

16.0

14.8

19.0

17.0

1.4%

1.6%

Devoteam

103.60

861

4.7%

6.6%

10.0%

1.1%

11.6%

9.7%

1.0

1.0

10.4

9.5

19.8

17.6

0.6%

1.1%

ESI Group

48.20

286

38.9%

6.7%

7.0%

7.9%

13.0%

13.5%

2.3

2.1

32.3

26.7

68.6

49.4

0.0%

0.0%

Reply

95.20

3,553

12.3%

9.8%

13.1%

2.8%

16.1%

13.0%

2.5

2.2

18.9

16.9

28.0

25.0

0.6%

0.6%

Sopra Steria

136.70

2,801

5.5%

3.8%

7.0%

7.8%

10.9%

11.7%

0.8

0.7

10.7

9.3

13.3

11.4

1.7%

1.9%

Average

10.4%

5.9%

8.5%

6.3%

12.4%

10.5%

1.4

1.3

17.0

13.9

26.7

20.1

0.9%

1.1%

(Discount)/premium to peers

(50%)

(49%)

(58%)

(54%)

(48%)

(39%)

(5%)

3%

Source: Edison Investment Research, Refinitiv (as at 11 March)

■


Exhibit 6: Financial summary

€'000s

2016

2017

2018

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

33,060

35,852

39,957

59,091

68,753

84,614

90,004

Cost of sales

(18,954)

(20,224)

(22,289)

(31,825)

(39,470)

(49,045)

(52,335)

Gross profit

14,106

15,628

17,668

27,266

29,283

35,569

37,669

EBITDA

 

 

4,260

3,536

4,098

7,004

8,560

10,452

11,546

Operating Profit (before amort and except)

 

 

3,954

3,180

2,755

5,408

6,538

8,349

9,442

Amortisation of acquired intangibles

(264)

(439)

(610)

(1,142)

(1,417)

(1,900)

(1,900)

Exceptionals and other income

(557)

0

(300)

(713)

(1,963)

0

0

Other income

0

(69)

0

0

0

0

0

Operating Profit

3,133

2,672

1,845

3,553

3,158

6,449

7,542

Net Interest

48

(208)

(1,284)

2,194

562

(100)

(100)

Profit Before Tax (norm)

 

 

4,002

2,972

1,471

7,602

7,100

8,249

9,342

Profit Before Tax (FRS 3)

 

 

3,181

2,464

561

2,315

5,877

6,349

7,442

Tax

(661)

(710)

4

(1,867)

(1,162)

(1,778)

(2,084)

Profit After Tax (norm)

3,170

2,170

1,204

5,473

5,696

5,939

6,726

Profit After Tax (FRS 3)

2,520

1,754

565

448

4,715

4,571

5,358

Ave. Number of Shares Outstanding (m)

11.7

11.7

11.7

11.7

11.7

11.7

11.7

EPS - normalised (€)

 

 

0.271

0.186

0.102

0.456

0.468

0.507

0.573

EPS - normalised fully diluted (€)

 

 

0.271

0.186

0.102

0.456

0.468

0.507

0.573

EPS - (IFRS) (€)

 

 

0.475

5.874

0.048

0.027

0.384

0.390

0.457

Dividend per share (€)

0.30

1.00

0.50

0.00

0.04

0.06

0.08

Gross margin (%)

42.7

43.6

44.2

46.1

42.6

42.0

41.9

EBITDA Margin (%)

12.9

9.9

10.3

11.9

12.5

12.4

12.8

Operating Margin (before GW and except) (%)

12.0

8.9

6.9

9.2

9.5

9.9

10.5

BALANCE SHEET

Fixed Assets

 

 

25,428

8,860

22,942

34,635

47,411

60,139

56,918

Intangible Assets

21,296

7,332

17,751

24,380

37,652

37,278

35,255

Tangible Assets

1,598

793

3,680

7,929

7,460

6,262

5,064

Other

2,534

735

1,511

2,326

2,299

16,599

16,599

Current Assets

 

 

37,085

109,426

134,674

127,052

126,036

114,861

115,924

Stocks

3,146

2,528

3,141

4,156

4,749

5,049

5,349

Debtors

26,369

17,215

16,992

24,150

41,193

46,364

49,317

Cash

7,570

89,683

114,541

98,746

80,094

63,447

61,258

Other

0

0

0

0

0

0

0

Current Liabilities

 

 

(21,051)

(13,612)

(29,366)

(43,129)

(55,446)

(60,413)

(62,100)

Creditors

(20,243)

(12,937)

(12,062)

(17,823)

(24,811)

(29,778)

(31,465)

Short term borrowings

(808)

(675)

(17,304)

(25,306)

(30,635)

(30,635)

(30,635)

Long Term Liabilities

 

 

(7,180)

(4,781)

(41,903)

(36,538)

(32,138)

(23,638)

(15,138)

Long term borrowings

(1,391)

(1,688)

(36,882)

(32,029)

(27,398)

(18,898)

(10,398)

Other long term liabilities

(5,789)

(3,093)

(5,021)

(4,509)

(4,740)

(4,740)

(4,740)

Net Assets

 

 

34,282

99,893

86,347

82,020

85,863

90,949

95,603

CASH FLOW

Operating Cash Flow

 

 

10,676

119

2,039

(354)

1,167

9,948

9,980

Net Interest

105

(208)

(69)

3,102

(988)

(100)

(100)

Tax

(2,022)

379

(624)

(229)

(1,332)

(1,778)

(2,084)

Capex

(738)

(661)

(548)

(916)

(1,156)

(782)

(782)

Acquisitions/disposals

(5,403)

82,250

1,314

(2,178)

(11,701)

(14,965)

0

Financing

(828)

(6)

(7,208)

(4,287)

(2,641)

0

0

Dividends

(2,931)

(3,496)

(11,710)

(5,781)

0

(469)

(704)

Net Cash Flow

(1,141)

78,377

(16,806)

(10,643)

(16,651)

(8,146)

6,310

Opening net debt/(cash)

 

 

(8,259)

(5,371)

(87,320)

(60,355)

(41,412)

(22,061)

(13,914)

HP finance leases initiated

0

0

(2,788)

(2,500)

0

0

0

Other

(1,747)

3,572

(7,371)

(5,800)

(2,700)

0

0

Closing net debt/(cash)

 

 

(5,371)

(87,320)

(60,355)

(41,412)

(22,061)

(13,914)

(20,225)

Source: TXT e-solutions, Edison Investment Research


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This report has been commissioned by TXT e-solutions and prepared and issued by Edison, in consideration of a fee payable by TXT e-solutions. 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.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by TXT e-solutions and prepared and issued by Edison, in consideration of a fee payable by TXT e-solutions. 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.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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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.

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