Renewi PLC (LON:RWI) was formed upon the completion of the merger between Shanks and Van Gansewinkel (VGG) in February 2017. The new company is well placed strategically with its ‘waste-to-products’ strategy capitalising on the trend towards a circular economy and, in the short term, its shareholders should benefit from a recovery in its core Dutch waste market and from the €40m in expected cost synergies We forecast underlying three year EBITDA CAGR of 10.9% the bulk of which is driven by merger synergies and note the attraction of the 3.9% dividend yield. Our fair value per share of 102p offers 27.5% upside to current levels.
Near and long-term catalysts in place
After an extended period of contraction, the Dutch waste market, accounting for the largest single business within Renewi, has returned to growth as the economy has recovered, boosted in particular by stronger construction activity. The company’s earnings prospects are further enhanced by the €40m in synergies identified by management to be extracted from the combined entity by FY20. Over the longer term we expect Renewi’s strategic focus on ‘waste-to-products’ to reward shareholders and facilitate government sustainability agendas. Finally, ‘commercial effectiveness’ or, in other words, the continued focus on profitability inherited from Shanks, will benefit shareholders as this core skillset is applied to the combined entity.
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