UK Markets closed

This stock has surged 25% on Friday’s news. Here’s why I’d buy it

Alan Oscroft
Chart displaying growth

Shares in Renewi (LSE: RWI) soared 25% Friday morning, against the downward trend of the past couple of years.

It comes after the waste recycling firm told us the Dutch government has lifted a ban on its thermally treated soil product (known as TGG), meaning the product made at the firm’s ATM facility can now be used for industrial applications in the Netherlands and abroad. Apparently it can be used as a secondary building material, and chief executive Otto de Bont describes it as “an important secondary material in the infrastructure market.”

Product ban

I pondered buying Renewi shares in March, when the effects of the ban on TGG were hurting, and the firm had just lowered its profit guidance and slashed its dividend. If shipments could not be resumed in the year to March 2020, which is what Renewi feared at the time, around €25m looked like being knocked off full-year profit, and the dividend cut was all about offsetting the effect of that. The dividend cut was a sensible move, I think, and it’s good to see a company taking that hard step rather than trying to hold out until the very last moment.

The outlook will presumably be revised upwards again now, and the company looks like it’s back on course. At the time I said I’d want to see more forward clarity, and we have that now — and on a forward P/E of 10 (based on the previous pessimistic outlook), I think we could be looking at a long-term dividend buy here.

Property buy?

This year, when anything related to the property market has been under pressure, the UK’s biggest listed residential landlord Grainger (LSE: GRI) has been bucking the trend.

Grainger’s shares are up 47% so far in 2019, beating the FTSE 100‘s recovering 13% gain, and over five years the price is up 72%. There are dividends into the bargain, though modest with yields of around 2%, but it adds up to a very nice return.

On Friday, the company revealed planning consent for the redevelopment of one of its private rental assets, the OCCC Estate in Lambeth, London, which will result in 215 new homes. The site currently has 69 homes, so that’s a significant increase. There will be new office space too, plus a rehearsal facility for the nearby Old Vic theatre.

Downturn

I’ve never really understood why investors have been shunning so much of the property sector. It’s all been down to Brexit, of course, and the feared resulting slowdown in house prices. But here in the UK, we’re suffering from a chronic housing shortage, with decent quality affordable rental homes nearly impossible to find in some parts, especially in London. And no Brexit outcome was ever going to change that.

If you want to get into real estate investing, I think Grainger is a good long-term bet. But after the share price gains of 2019, I can’t help feeling there might be better buying opportunities ahead for those who wait a while.

More reading

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019