MIDAS SHARE TIPS: Dig deep... there's treasure among the trash at waste firm Renewi
In a post-Blue Planet world, you might expect a recycling expert such as Renewi to be benefiting from our new focus on the dangers of wasting our waste.
The company is a global version of Great Uncle Bulgaria in The Wombles, making use of the things that the everyday folk leave behind. It turns the precious metals in old mobile phones into medals for figure- skating champions and the waste from incinerators into new paving tiles.
However, Renewi, which boasts on its website that 'waste is a state of mind, and an opportunity', has struggled to turn its own operations into value for its shareholders. In the past 12 months, the company's shares have tumbled from more than £1 to 34p.
Pledge: Recycling company Renewi describes waste as ‘an opportunity’
Many of the company's most recent public statements make for dismal reading: exceptional charges from a contract review in February; an additional £73million writedown in March; the resignation of the chief executive in November, followed by a profit warning three days later.
Look more closely at this business, however, and you might find treasure among the trash.
Renewi is a relatively new business, formed in 2017 by the merger of Shanks and Dutch-based Van Gansewinkel, both of which are old hands at the recycling game. The merged business has four main divisions, some of which have been more successful than others.
The Commercial division handles waste collection and treatment in Belgium, the Netherlands and Luxembourg. The Hazardous division treats contaminated soil and water in the Netherlands.
The Monostreams division recycles specific commodities such as glass, minerals and electronic goods. And the Municipal division operates waste treatment systems in the US and Canada, and public finance initiative deals for UK councils.
There is money to be made in all these areas, but the company has been beset by issues, which have hit its profits. Most serious is the Chinese ban on imports of recyclable materials.
Danger: Blue Planet highlighted the levels of plastic in our oceans
China was the world's biggest scrap importer, but on the first day of 2018 it stopped accepting 24 types of solid waste, including certain types of plastic, paper and textiles, causing the price of recyclables to tumble and countries and firms to scramble for alternative ways to dispose of waste.
The company has also had issues with overrunning costs on PFI contracts in Britain and delays at its soil decontamination facility in the Netherlands. This has weighed on Renewi's share price, while investors have also chafed at the company's high debt level of £514million.
Given the stream of bad news, it is unsurprising that the shares are near historic lows, but some brokers are predicting that there is light at the bottom of the recycling basket.
Peel Hunt pointed out in a recent note that even a glimmer of good news could see a pick-up in the share price, and there is plenty of potential for Renewi to show the world it is back on track.
Some of the positive steps that Renewi investors are hoping to see include the reopening of the soil decontamination facility in the Netherlands, while full-year figures in May might contain news about additional cost savings from the Shanks/Van Gansewinkel merger.
The company is extracting itself from costly British PFI deals, and fans of the business hope that this will help stem the stream of bad news.
Midas Verdict: It can't be denied that Renewi has had a bad time of late, but the human tendency to create waste isn't going away any time soon and the company has the expertise and scale to deal with it. Otto de Bont, the Renewi commercial director who takes the helm as chief executive in April, has plenty to do to convince the market that Renewi is a good bet. However, even a small piece of positive news has the potential to push up the shares, which are yielding 9 per cent. Hold your nose and buy for the long term.
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