Renewi plc's (LON:RWI) Shift From Loss To Profit

Renewi plc (LON:RWI) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Renewi plc provides waste-to-product services in the United Kingdom, the Netherlands, Belgium, France, Germany, Hungary, Portugal, Canada, and Luxembourg. With the latest financial year loss of €61m and a trailing-twelve-month loss of €39m, the UK£299m market-cap company alleviated its loss by moving closer towards its target of breakeven. Many investors are wondering about the rate at which Renewi will turn a profit, with the big question being “when will the company breakeven?” We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.

Check out our latest analysis for Renewi

According to the 3 industry analysts covering Renewi, the consensus is that breakeven is near. They anticipate the company to incur a final loss in 2021, before generating positive profits of €22m in 2022. So, the company is predicted to breakeven approximately 2 years from today. How fast will the company have to grow each year in order to reach the breakeven point by 2022? Working backwards from analyst estimates, it turns out that they expect the company to grow 57% year-on-year, on average, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

Given this is a high-level overview, we won’t go into details of Renewi's upcoming projects, however, keep in mind that typically a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

Before we wrap up, there’s one issue worth mentioning. Renewi currently has a debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Renewi, so if you are interested in understanding the company at a deeper level, take a look at Renewi's company page on Simply Wall St. We've also put together a list of important factors you should look at:

1. Valuation: What is Renewi worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Renewi is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Renewi’s board and the CEO’s background.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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