The Renewi (LSE:RWI) share price has been on fire. The business released a trading update last week that saw its stock soar by just under 10% in a single day. This upward momentum has since continued and pushed the 12-month performance to just over 190%! So what’s so special about this company? And should I be considering it for my portfolio? Let’s take a closer look.
A rising waste-to-product business
In the simplest terms, Renewi is a recycling company. It processes around 14 million tonnes of waste each year and uses its facilities to convert around 89% of it into usable raw materials. These can then be sold to various product manufacturers to be reused to make a wide range of items, from vacuum cleaners to bicycles.
Last week, the business published its half-year trading update. And while brief, it sent a clear message. Things are going well. Processed waste volumes are on the rise, with some of its European operations, such as in Belgium, reporting double-digit jumps. This increased demand is causing recyclate prices to climb, enabling its revenues over the first five months of its 2021 fiscal year to grow by 10%.
Consequently, management has decided to “materially upgrade” its performance expectations for the year. Detailed outlook won’t be available until the full interim results are published next month. However, given the progress being made, I’m not surprised to see the Renewi share price on the rise.
Renewi share price risks
Without precise performance figures, it’s difficult to discern whether Renewi’s recent share price boost is justified. This is especially true since there appears to be a problem fermenting within its Mineralz & Water division. This segment focuses on creating rich compost as well as clean water. However, unlike its product recycling operations, 2021 hasn’t been as impressive.
The business did manage to increase its soil throughput to over 350,000 tonnes. However, Covid-19 continues to disrupt various construction projects and create delays in processing waste-import licenses.
Consequently, the incoming volume of contaminated soil for Renewi to treat is starting to show weakness. This developing situation has been mentioned in earlier trading updates. But management now believes that the recovery time will be longer than initially anticipated, potentially leading to a significant level of lost income.
Needless to say, that’s not good news for the Renewi share price.
The bottom line
Given the rise of ESG investing and the push towards slowing down and eventually reversing the effects of global warming, Renewi’s business seems more relevant than ever. But while I like what it’s doing, it’s hard to come to a reliable conclusion about recent operations without more data.
Therefore, despite Renewi’s share price potential, I’m keeping it on my watchlist until the interim earnings report’s published next month.