Renewi upgrades earnings forecasts, shares jump

Renewi expects full-year earnings to be "significantly" ahead of forecasts, the recycling specialist said on Thursday, boosting the shares.

London-listed Renewi, which operates across Europe, said it had continued to perform well in the fourth quarter, driven by a strong performance from its commercial division.

As a result, group underlying earnings before interest and tax for the year to 31 March 2021 are now expected to be "significantly ahead" of previous expectations at around €68m.

The cash performance is also expected to be "materially better" than earlier forecasts, with core debt excluding lease liabilities likely to come in below €350m.

The update buoyed the shares, and by 1130 GMT Renewi was trading 14% higher at 52.43p.

Looking beyond the current year, Renewi said: "The board remains suitably cautious at this stage regarding the outlook for the financial year ending 31 March 2022, given the uncertainty as to the varied impacts of lockdown restrictions ending, recyclate prices and a potential late cycle slowdown in the construction sector."

But it added: "Longer term, the transition to increased recycling will continue to support our business model."

Andrew Shepherd-Barron, analyst at Peel Hunt, said: "Renewi is having a better fourth quarter than expected, with lockdowns only seeing commercial volumes down 2 percentage points from the 98% of pre-Covid levels in the third quarter. With higher recyclate prices, and well controlled costs, management now expects EBIT to be around €68m, well ahead of our €54m expectation, and we upgrade to this level.

"This is the fourth upgrade since the Covid bottom and suggests that momentum has return to earnings. However, we are not changing our 2022 full-year estimates or beyond, at least not at this stage, since recyclate prices can turn and construction volumes retreat."