Renewi plc is a leading European waste management company operating primarily in the Benelux region. It is listed on the London Stock Exchange and Euronext Amsterdam. Among other things, the company is involved in recycling paper, metal, plastic, glass, wood, building materials, compost and energy; it also handles ultimate disposal of waste streams that cannot be recycled or incinerated.
Renewi was created in 2017, following the merger of Shanks Group plc with Van Gansewinkel Groep BV; the Group has re-launched the combined business under a new brand, which will include re-naming the Company from Shanks Group plc to Renewi plc
The company’s 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.
Renewi – A ESG leader in recycling and secondary material production
Renewi focuses on extracting value from waste rather than on its disposal through mass burn incineration or landfill.
In June 2020, Renewi launched a new and enhanced strategy which will further differentiate it as a pure-play recycler, a company that focuses on supplying high-quality secondary materials. This strategy is based on three market-facing priorities building upon its leadership position in the circular economy, and two internal improvement strategies to help perform more effectively.
Market-facing strategies
1. Leader in recycling
Recycling is central to the waste-to-product mission, and also answers market demand.
2. Leader in secondary material production
Improving the quality and “spread” of the products they produce increases the value of what they recycle.
3. Selectively gain market share
Growing the total volume of waste treated.
Internal Improvement Strategies
The internal improvement strategy – delivered through a programme called Renewi 2.0 – is expected to make the company leaner and more efficient. Over the next 3 years, they will introduce simplicity, strengthen our customer focus and create a better place to work through:
- The digitisation of the business – providing a fully digital solution for customers to deliver a better 24/7 customer experience while reducing costs, and
- Simplification and harmonisation of processes. Simplifying and standardising across divisions to reduce cost and errors and to improve customer, supplier and employee experiences.
To add to the enhanced business strategy, Renewi has also launched our first long-term sustainability strategy and a new 5-year sustainability policy which will contribute towards six of the UN Sustainable Development Goals. These are: Enable the circular economy, Reduce carbon emissions and waste, and Care for people.
https://www.renewi.com/en/about-renewi
Renewi plc: Revenue breakdown
Renewi operates three different divisions:
COMMERCIAL: Construction and Demolition (C&D) – Netherlands only; Industrial and Commercial (I&C); Domestic and Hazardous – Belgium only.
Commercial is the largest division generating >70% of revenue, ca.85% of EBIT, with 67% of total non-current assets.
MINERALZ & WATER: ATM is one of Europe’s largest companies in handling contaminated soil, wastewater and oily sludge and in removing hazardous waste substances including packaged chemical waste. CFS is a specialist company that processes contaminated water and sludge using a physico-chemical separation process to produce clean water and sludge which can be used as fuel for power stations. Mineralz cleans contaminated soil and recycling mineral residues and turns them into secondary raw materials.
M&W is the smallest division generating about 10% of revenue, ca.4% of EBIT, with 12.5% of total non-current assets.
SPECIALTIES: Municipal operates waste treatment facilities for UK city and county councils. The waste treatment facilities form part of long-term PFI or PPP contracts between Renewi and the associated council, usually lasting 25 years. These contracts are established primarily to divert waste away from landfill in a cost-effective and sustainable way.
Specialties account for about 18.5% of revenue, ca.13% of EBIT, with 15% of total non-current assets.
Renewi plc: Downward Trend and Headwinds
Since 2017, Renewi stock price is ca. 50% lower than peak. Between Feb 2018 and Mar 2019 it recorded about 80% drawdown. However, considering dividends, shareholder return has been positive.
Among the factors causing the price drop the most important are unfavourable accounting losses due to provisioning and long-term contracts liabilities, problems with the Dutch authority (see further below) and margin pressure due to energy and wage rising prices coupled with lower recycled prices.
Pressured by negative results, the company decided to cancel cash dividends in May 2020, whilst these will be resumed in 2024.
Renewi plc: SWOT Analysis
Strengths:
- Strong market position in the Netherlands and Belgium, among the countries with the highest recycling rates.
- High exposure to recycling and composting, low exposure to landfill.
- Strong ESG rating shall attract more investments.
- Diversified product portfolio.
- Industry leader.
- Diversified customer base among private consumers and governments.
- Very good trend since 2021.
- Increasing profitability.
- Improving long-term solvability as solvency, leverage and interest coverage ratios are moving positively.
- High ROIC and ROIC last 2.5 fiscal years.
- High asset turnover.
- Good cash flow conversion and low volatility of operating cash flow generation.
- Well undervalued against main competitors. We foresee up to 100% upside to the current stock price (570GPX).
Weaknesses:
- Geographical concentration: while Renewi has expanded its operations in several European countries, it still generates 65% of its revenue from the Dutch and Belgian markets: Netherlands 73% of total assets, followed by Belgium (22%) and France (1%) – Netherlands 59% of total revenue, followed by Belgium (28%) and the UK (10%). This concentration exposes the company to risks associated with these specific markets, such as geopolitical tensions or changes in trade policies.
- Generated losses for 8 years in a row (2019-2012). While the last 3 years have been positive, there is no guarantee the new plan will work out effectively.
- Flat or slightly negative organic revenue growth in ’23 and ’24 (expected).
- Short-term solvency ratios have been worsening.
- High operating risk.
- Recyclates are not hedged and price fluctuations impact the P&L.
Opportunities:
- Circular Economy – increasing efforts to recycle and reuse waste. Renewi can capitalize on this trend by expanding its product offerings and exploring new markets.
- Energy self-production: the company’s energy needs are partially satisfied by internal production.
- Recent investments in development CAPEX could work out well and increase the return on capital.
- Regulatory environment: changes in environmental regulations can create opportunities for Renewi’s operations, especially as it operates in multiple countries with varying regulatory frameworks. Given the rising attention to sustainability, we deem there is much more upside than downside.
- Potential for acquisition: while the industry is consolidating there is also a potential from non related industries like household appliances and the like. The company’s capitalization is relatively small and a recent acquisition proposal by the investment firm Macquarie (price ~820 GPX) was recently turned down as deemed unfavourable despite being at 50%+ premium. As shown below, a research by Edison unveils a potential target undisturbed price (excluding take-out premium) for Renewi at ~1300 GPX.
Threats:
- Competitive landscape: the waste to product industry is competitive, with several local and global players (mostly private). Intense competition can impact market share, pricing, and profitability.
- Volatile input costs: fluctuations in recycled prices, energy and labour costs, can affect Renewi’s production costs and profitability.
- Legacy issues: Soil and TAG are treated in a thermal remediation facility to burn off and collect/filter contaminates to produce ‘neutralised’ thermally treated soil (TGG), which can then be reused. In 2018 concerns were raised over the quality of remediated soil by IL&T, an independent Dutch regulator, leading to the Dutch government halting the use of TGG. This moratorium inevitably pushed the business into loss. In response a recovery strategy was developed based primarily on additional processing of the treated soil into secondary materials for the construction industry. These are sand (55%), gravel (30%) and filler (15%) to be used in the production of cement, concrete and asphalt. The investment was planned to increase capacity to over 1.5Mtpa. In addition, the plan included disposing of the 1.5Mt legacy stocks of TGG, requiring legal authorisation per individual use.