Renewi stock: buy, sell, or hold? This is what I’m doing now

Should I buy star-performing waste-to-product company Renewi as its financial numbers rapidly improve and the stock takes off?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE Small Cap company Renewi (LSE: RWI) earns most of its income from dealing with commercial waste in the Netherlands and Belgium. The firm recycles and turns waste into materials such as paper, metal, plastic, glass, wood, building materials, compost, and energy.

Renewi stock has been performing well

The stock is notable for having risen from around 20p last September to around 55p today. However, in January 2018 it was close to 105p, suggesting plenty more potential upside from a recovery in the underlying business.

But it’s worth bearing in mind the plunge in the stock began before the arrival of Covid 19. A combination of regulatory problems, stalled production, and high debts took its toll on investor confidence in the enterprise.

Adding the effects of the pandemic on top, there seems little doubt that Renewi became a recovery proposition. And judging by the recent rise in the stock price, recovery in the underlying business is gaining traction.

On 27 May, the firm delivered its full-year results. The report described “robust” performance and “good” progress with growth initiatives. Looking ahead, the directors declared an “improved” outlook for the current trading year to March 2022.

I think we can see why the stock’s been rising in some of the figures. Statutory profit came in at €11m compared to a loss of just over €77m the prior year. And core net debt declined to €344m from €457m. Those numbers are moving in the right direction and the directors also declared a “material upgrade” to their expectations for the current year.

Recovery and growth

The company made decent progress in the period with a number of growth projects. And chief executive Otto de Bont said the firm’s business model is driven by a transition to a “circular economy” as demand increases for recycling and higher quality recyclates. He sees more opportunities ahead for Renewi to convert waste into a wider range of secondary materials. And much of that trend will likely be driven by the policies of the EU and national governments.

Meanwhile, today’s share price near 55p put the forward-looking earnings multiple near nine for the trading year to March 2023. That valuation looks reasonable as long as operational recovery and growth continue. However, one factor to keep an eye on is the firm’s debt load. Although borrowings are lower now, they still represent a big burden to the company.

Another area of concern is that operations are low margin in nature and the business has yet to deliver decent returns against invested capital and equity. On top of that, the business has struggled to maintain earnings over the past few years. Shareholders really do need a change in fortunes to make sense of an investment in the stock now. So, I’d look for ongoing recovery and growth in earnings in the months and years ahead.

However, I’m in no hurry to buy the stock because the business still has a lot to prove. I’m watching from the sidelines for the time being.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »