Berenberg starts coverage of Renewi at ‘buy’

The bank said Renewi currently exhibits a depressed valuation, given a combination of legacy issues and concerns about its near-term forecasts due to recent tailwinds from elevated recyclate and commodity prices.

"We think these concerns are overdone and the company offers a material re-rating opportunity for patient investors," it said.

It added that Renewi has highly attractive medium-term drivers, as well as near-term strategies to boost profits - offsetting pricing headwinds - and should achieve a material step-up in cash generation over the next couple of years as legacy headwinds unwind.

Berenberg said the core Renewi story is "simple".

"We believe that recycling volumes should be positive over the medium term, with tailwinds from GDP growth, increased regulation and societal pressures for greater recycling rates, offsetting trends for more reusable materials," it said.

"Structural growth in demand for recycled materials should then be supportive for prices, leaving a growing business over the medium term. Renewi will stay at the forefront of this industry, we think, given its leading position in two of the most advanced European recycling markets and its history of innovations, investments and attractive rates of return.

"Owing to all of this, combined with a step-up in growth capex, we believe that 5% annual organic growth should be achievable."