Shares in Renewi (LSE: RWI) have been in freefall since the start of 2018, losing 80% of their value.
That includes Fridays fall, down more than 20% in early morning trading, after the waste management firmslashed 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 years 3.05p per share to just 1.45p. Theres also going to be a similar reduction in the 2020 dividend, though Im not quite sure exactly what that means.
Even at 1.45p, the dividend would still yield around 6.5% on todays lower share price, and thats still tempting. But Id at least want to know the plans for 2020 pegged at this years new level, or reduced further?
Where theres muck
The profit warning is down to problems withshipments 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 Renewis new guidance assumes there will be no resumption in the financial year to March 2020. Thats 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 Id want to see more forward clarity.
Travel woes
Meanwhile, shares inThomas Cook Group (LSE: TCG) lost 10% of their value in early trading, as contagion from TUI Travels profit warning spread.
TUI expects full-year profits to be hit by around 200m this year due to to the grounding of theBoeing 737 Max fleet after theLion Air and Ethiopian Airlines crashes. And investors clearly fearThomas 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. Were 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, were 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 companys long-term viabilitycurrently appears sound, fear alone can be enough to drive it to ruin.
And thats part of the reason why I steer clear of airlines and travel businesses.
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