The previously flagged intention to sell Reym has crystallised through the announced disposal to REMONDIS Group for an EV of €64m (or 5.4x EBITDA). This move modestly dilutes our earnings estimates, further reduces net debt and reinforces Renewi PLC (LON:RWI) waste-to-product recycling credentials. Gearing levels may still be high for risk-averse investors currently but the trend is clearly downwards. P/E multiples remain firmly in single digits currently and our estimates show a yield crossover in FY21.
Reym exit modestly earnings dilutive and lowers debt
Reym is a Netherlands-based industrial cleaning services business focused on the oil & gas industry and, as such, does not fit in with Renewi’s sharpened strategic focus on waste-to-product businesses. The disposal, subject to competition authority clearance, is expected to complete before the end of October. As part of the sale, long-term contracts regarding the supply of by-product waste inflows from Reym to ATM (largely in the form of combustible materials used in energy generation for various processes) have been put in place and there are no wider business implications. An associated €28m loss on disposal is substantially a goodwill write-down effect and the transaction leaves ATM (remediation of soil and contaminated water) as the sole Hazardous divisional business now.
Reflecting this latest disposal, we have reduced our earnings expectation by 3–5% in each of our forecast years. (We have treated Reym – as well as Canada Municipal – as a discontinued business; our earnings estimates are for the ongoing businesses only.) Our end-FY20 core net debt projection is now c €462m, equivalent to c 2.8x continuing business EBITDA generated in the year. An H120 pre-close trading update is anticipated in the coming weeks and we will review our estimates more fully then but, adjusting for the Reym transaction only, core net debt:EBITDA declines to 2.4x by the end of FY21 and 2.2x one year further out in our revised model.
Valuation: Risk reducing, attractive yield
Renewi’s share price has not really responded to the business disposal announcements since its FY19 results announcement in May, in our view. Perhaps gearing ratios are still too rich for investors currently, but there has been a clear step down and the direction of travel is for further reductions over our estimate years. On our revised estimates, the current year P/E of 7.8x and EV/EBITDA (adjusted for pensions cash) of 4.6x reduce to 4.9x and 3.7x respectively by FY22. A flat expected dividend payout in FY20 still yields 4.9% and our estimates show uplifts in future periods.
