Muck means brass for Renewi

Each year this waste-to product group recycles and recovers around 13m tonnes of waste, 90% of which it turns into valuable products or energy. To Renewi, waste is both a state of mind and an opportunity – this company is an important part of our future.

A couple of weeks ago, Renewi (LON:RWI), the leading international waste-to-product group, declared its interim results to end-September.

They showed ongoing business revenues down just 3% at €821.4m and its underlying profits before tax on its ongoing businesses down 24% at €15.3m. On the face of it, disappointing results – but then it is important to look just a bit deeper and then you get the true picture.

Peering behind the results

In September last year, the group sold off its Canada Municipal business, then a month later it disposed of its Reym industrial cleaning business.

So, drilling down further we identify that the continuing operations in the group’s framework actually kicked in €4.4m of pre-tax profits against the €17.8m loss the previous year.

The disposals helped to slash core net debt from a whopping €514m to a much reduced €381m.

New life to old

With some 7,000 employees working at its 174 operating sites across Europe, Renewi gives new life to used materials every day. 

The group’s many years of knowledge and experience, combined with a broad range of services, allows it to offer sustainable, practical recycling solutions to its client’s waste. 

It uses its innovation and the latest technology to turn waste into useful materials such as paper, metal, plastic, glass, wood, building materials, compost and energy. 

Turning today into tomorrow

Effectively it turns today’s waste into tomorrow’s raw materials. This results in less waste and contamination, a smarter use of scarce raw materials, and a reduction in carbon emissions. 

The main and totally laudable plank of Renewi’s corporate strategy, it seems, is that it aims that to make profits as it contributes towards a cleaner, circular world in which we all ‘waste no more’.

Instead of burning or dumping waste it focusses exclusively upon obtaining value from that waste.

A sensible and beneficial Benelux merger

The group evolved out of the February 2017 merger between the UK-based Shanks Group and the Dutch-based Van Gansewinkel Group.

In the UK its activities include: long-term local authority municipal solid waste contracts; the anaerobic digestion of food waste; and the production of lower-carbon alternatives to fossil fuels.

Over in the Netherlands the group’s activities include collections, sorting and processing, re-use and recycling, soil cleaning, composting, landfill, refuse-derived fuel production and industrial cleaning.

The Belgian activities include collections, recycling, soil cleaning, refuse-derived fuel production, waste treatment and landfill in Flanders, Wallonia, and Brussels.

Very high recycling and recovery rate

Across the group it collects some 13.18m tonnes of waste a year. It recycles and recovers 2.7bn glass bottles each year; in paper and card recycling it handles the equivalent of 2.2bn newspapers per annum; in rubble recycling it creates enough new product to build more than 15,000 houses a year; and it treats over 900m litres of water yearly.

Its recycling and recovery rate runs at 90.8% of the waste it collects.

The group’s future growing profitability 

Edison Research forecasts for the current year to end-March 2021 suggest that revenues will come in at around €1.58bn, while pre-tax profits could be some €22.2m, worth 2c per share.

For the prospective year, revenues are expected to improve to €1.69bn and pre-tax profits to more than double to €46.4m, generating 4.3c per share.

Then looking further out, forecasts imply €1.75bn of group sales, a record €69.8m of profits and 6.6c in earnings per share.

Shares beginning to recover in price

Way back in January 2018, the group’s shares were trading at around 108.2p, before falling almost continually in the next fourteen months to March 2019 and a price of 23.8p. 

By end-February this year they had recovered to 45p before Covid-19 wrecked the market and the group’s current year sales and profits.

After the end-May low of 18.12p they have, since the H1 results, moved upwards again to the current 32p.

I profiled the company just over a month ago at 24p, so I have been pleased to see them move back over 30p subsequently. I have little doubt that my price objective will be attained shortly.

Brokers put out much higher price objectives – over 50% to go for

Following the recent interims, brokers Peel Hunt have recommended the shares as a ‘buy’ aiming for 49p, while Investec have come out and suggested 50p a share. Effectively those brokers are saying, “Waste no time and jump aboard”.

The group proudly states that, “Our vision is to be the leading waste-to-product company in the world’s most advanced circular economies – contributing to a sustainable society for all key stakeholders: customers, suppliers, local communities, employees, regulators, Governments, investors and lenders.”

Longer term I see no reason why the shares should not exceed both the Investec and the Peel Hunt price objectives.

(Profile 09.10.20 @24p set a Target Price of 35p)