Renewi resilient against cost pressures

Recycling group Renewi (RWI) – which styles itself as a “waste-to-product” company – was faced with a shortage of input detritus in some of its key markets in the last financial year. 

Greenhouse operations in the Netherlands, where the company earned more than half of its revenue, scaled back production when energy prices spiked. This, in combination with a hot and dry summer, led to an overall reduction in compostable waste. Hiccups in the construction sector’s supply chains also meant that building demolitions slowed down – reducing another source of waste that Renewi depends on. 

In response to falling volumes of recyclable materials, the company said it was forced to exercise pricing discipline, “ensuring that to the extent that it was possible costs were passed on to customers”. For the most part, those customers stuck around – enabling Renewi to keep its revenue and pre-tax profit figures relatively stable.

The company’s commercial division, which accounts for nearly three-quarters of total revenue, increased its turnover by 3 per cent across the year. However, its underlying earnings before interest and tax fell by 5 per cent due to cost inflation, higher utility costs, wage increases and the normalisation of recyclate, or recycled material, prices. 

There was a total cash outflow of almost €65mn (£56.5mn) from the business across the 12 months to the end of March, driven by the debt impact of acquiring Paro, a Dutch construction waste recycling business. The purchase took Renewi’s core net debt to €371mn from €303mn in the prior year. Consequently, its net debt to Ebitda ratio increased to 1.8 times from 1.4 – leaving it just below management’s long-term target of 2.0. 

Looking ahead, the company is targeting €3bn in annual revenue with high single-digit profit margins. It hopes to attain this through market share gains, as well as by extracting more value from waste and deploying advanced recycling technologies. Crucially, it also hopes to expand beyond the Benelux region. 

“We believe our waste collection model can be replicated in other territories, where the development of the circular economy will be driven by EU legislation,” the company said. Given the drive towards decarbonisation across Europe, Renewi is well placed for growth – and with a price/earnings multiple of just 7.7 for FY 2024, it’s attractively priced, too. Buy.

Last IC view: Buy, 426¢, 11 November 2022