Shares in Renewi (LSE: RWI) have been in freefall since the start of 2018, losing 80% of their value.
That includes Friday’s fall, down more than 20% in early morning trading, after the waste management firm slashed its profit guidance and its proposed dividend — though, as I write, the price has recovered to a more modest 10% drop.
The dividend, which was previously set to deliver a yield of 13%, will now be cut from last year’s 3.05p per share to just 1.45p. There’s also going to be a “similar reduction” in the 2020 dividend, though I’m not quite sure exactly what that means.
Even at 1.45p, the dividend would still yield around 6.5% on today’s lower share price, and that’s still tempting. But I’d at least want to know the plans for 2020 — pegged at this year’s new level, or reduced further?
Where there’s muck
The profit warning is down to problems with shipments of thermally-treated soil from a plant in the Netherlands, after regulators halted movements in November last year, saying further analysis would be needed before supplies could resume.
It was assumed shipments would restart this year, but Renewi’s new guidance assumes there will be no resumption in the financial year to March 2020. That’s going to shave around €25m off full-year profit — with the dividend cut expected to save €30m.
Previously optimistic analysts’ forecasts are up in the air now, but the market has clearly been discounting them as unrealistic for some time. The shares could be oversold, but I’d want to see more forward clarity.
Travel woes
Meanwhile, shares in Thomas Cook Group (LSE: TCG) lost 10% of their value in early trading, as contagion from TUI Travel‘s profit warning spread.
TUI expects full-year profits to be hit by around €200m this year due to to the grounding of the Boeing 737 Max fleet after the Lion Air and Ethiopian Airlines crashes. And investors clearly fear Thomas Cook could be facing similar problems.
Its shareholders have endured a dreadful time, with the value of their shares down 80% over the past 12 months — and almost 90% over five years. The dividend has been slashed too, and is currently expected to offer a pittance of less than 0.5% in yield.
The company has issued several profit warnings and has had to turn to escalating levels of debt to keep going, and its current share price valuation reflects that. We’re looking at forward P/E multiples of only around four, which is the kind of level that usually suggests the market expects a company to go bust.
Oversold?
But, as my colleague Kevin Godbold has pointed out, when you strip out the debt and value the company on its remaining enterprise value, we’re still looking at P/E ratios of no more than around eight. For a viable business, that suggests a bargain. So should we buy?
We should remember that canny holidaymakers can see the problems facing Thomas Cook and, fearing the worst, many will book with other operators. That just adds to the potential downwards spiral, and even if a company’s long-term viability currently appears sound, fear alone can be enough to drive it to ruin.
And that’s part of the reason why I steer clear of airlines and travel businesses.
