Renewi – recovery from this waste group

Renewi is due to announce its interim results on Tuesday and Mark Watson-Mitchell is looking for more positivity and upgrades from brokers.

At the beginning of October this international recycling business announced its trading update for the six months to end-September and despite Covid-19 hitting it for six, it was actually very encouraging about its future recovery.

Renewi (LON:RWI) is a leading waste-to-product recycling company that gives new life to used materials every day. The group has some 7,000 employees working at its 174 operating sites across Europe.

Renewi was created in 2017, following the merger of Shanks Group plc with Van Gansewinkel Groep BV. The group listed in London in 1988 and this year obtained a secondary listing on the Euronext market in Amsterdam.

It is a Benelux market leader with some 85% of its revenues created inside the Benelux countries.

The enlarged grouping has a declared mission to transform waste into essential new products. It considers that ‘waste is a state of mind, and an opportunity’ so by acting today to reuse materials and protect the environment it is making a significant contribution in sustaining tomorrow.

Its broad range of services offers sustainable, practical recycling solutions through using innovation and the latest technology to turn waste into useful materials such as paper, metal, plastic, glass, wood, building materials, compost and energy. In other words, Renewi turns today’s waste into tomorrow’s raw materials.

Less waste and contamination, a smarter use of scarce raw materials, and a reduction in carbon emissions, means contributing towards a cleaner, circular world in which we ‘waste no more’.

Earlier this year the group reorganised its business into three main divisions: commercial waste; mineralz and water; and specialities.

It generates revenue from collecting and processing waste and by selling the recyclates and energy that it produces. Its focus is shifting towards the downstream end of the value chain, from collection to processing and thereby to delivering more and higher-quality secondary raw materials and biofuels.

In the October update the group’s management remained suitably cautious about the macroeconomic outlook, including any potential future slowdown in the later-cycle Dutch construction market and potential further measures to contain Covid-19.

With better than anticipated trading in the first half, including a period of extensive lockdown measures in Q1, it is sensible to now look forward to an expectation-busting performance for the year to end-March 2021.

Edison Research estimates that the current year will see revenues ease back from €1.77bn to just €1.56bn with pre-tax profits falling from €54.3m to €10.6m, and with earnings collapsing from 5.4c to only 0.9c per share.

However, for the end-March 2022 year it sees €1.69bn and €42.2m respectively, with 3.9c in earnings.

Going forward the 2023 year could report sales of €1.75bn and record profits of €66.1m, pushing earnings up to 6.2c per share.

Renewi outlined its new strategy with its full-year results in June 2020, with three key initiatives to deliver additional earnings of up to €60m in the coming three to five years and Edison has come out strongly along that prediction.

There are 800m shares in issue, which values the group at £190m.

There are a number of leading investment groups in the equity including Paradice Investment Management (5.82%), Notz Stucki Europe (5.25%), Cross Ocean Partners Management (4.26%), Avenue Europe Management (3.74%), Citigroup Global Markets (3.42%), ACTIAM (3.04%), Farringdon Netherlands (2.95%), ING Luxembourg (2.70%), Dimensional Fund Advisors (2.60%) and Royal London Asset Management (2.57%).

The group should be announcing its interim results on Tuesday 10 November and I am looking for more encouraging comments from the management and upgrades from researchers and brokers.

The shares are currently 23.75p and have been a gradually firming market of late.

I now set an early 35p target price.