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City broker slashes Renewi forecasts and price target as recycler warns on profits once again

Renewi is now assuming that it won’t be able to sell any soil treated at its ATM hazardous waste plant in the Netherlands in the year to March 2020, which will dent profits by €25mln
ATM hazardous waste plant
It is the second ATM-related profit warning in the past six months

Shares in Renewi PLC (LON:RWI) slumped on Friday after the waste management group slashed its dividend amid fears it may not be able to restart shipments of treated soil from its Dutch plant for another year.

The recycler has been in talks with local authorities since last autumn when regulators said soil treated at its ATM facility in Moerdijk required further analysis before it could be sold on.

READ: Renewi boss to leave for new job as COO of Melrose

Renewi had hoped to get production back up and running as soon as possible, but it has now conceded that there is a chance it may not be able to restart operations even in its next financial year.

“We continue to expect the authorities to permit shipments under such an interim regime during the year ending 31 March 2020 and we maintain a strong order book of domestic and export customers waiting to take the cleaned soil once regulatory clearance is given,” read the pre-close trading update.

“However, we are changing our approach to guidance regarding ATM and we have prudently assumed no such shipments for the purposes of the Group's financial forecasts for the year ending 31 March 2020, resulting in a reduction in EBIT of around €25mln when compared to a year of full production.”

Dividend slashed

For every month that the plant remains shut, the company misses out on €3mln of operating profit it otherwise would have received.

That has put a strain on its finances, and Renewi has cut its annual pay-out to 1.45p-a-share for its current financial year which ends this weekend, down from 3.05p last time around.

Coupled with “similar reduction” in the coming year, the dividend cuts will help to save €30mln.

It has also extended the net debt-to-EBITDA covenant with its lenders to 3.5x which gives it a bit more breathing room.

‘Tough year’ says analyst

“FY19 has been a tough year for Renewi, but the final results are expected to be in line with our revised expectations on an adjusted basis,” said Peel Hunt in a note to clients.

“The ATM hazardous waste plant has however still not re-started and, whilst management is confident that it will, it is now excluding it from guidance.

“The banks are supportive, increasing the March 2020 covenant to 3.5x from 3.25x, which reflects Renewi’s market position and EBITDA levels, with the announced 50% dividend cut also helping.”

The City broker cut its 2020 and 2021 earnings forecasts by more than a third and reduced its target price to 60p (from 87p).

Shares fell 10% to 21.9p on Thursday. The stock has lost two-thirds of its value since this time last year.

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