Updating estimates for FY22 results

Accsys Technologies 5 August 2022 Update
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Accsys Technologies

Updating estimates for FY22 results

FY22 results review

General industries

5 August 2022

Price

99p/€1.20

Market cap

£204m/€248m

€1.19/£

Net debt (€m) at 31 March 2022

27.2

Shares in issue

206.6m

Free float

35%

Code

AXS

Primary exchange

LSE

Secondary exchange

Euronext Amsterdam

Share price performance

%

1m

3m

12m

Abs

(9.5)

(31.8)

(39.5)

Rel (local)

(12.9)

(31.3)

(40.0)

52-week high/low

181p

98p

Business description

Accsys Technologies is a chemical technology company focused on the development and commercialisation of a range of transformational technologies based on the acetylation of solid wood and wood elements for use as high-performance, environmentally sustainable construction materials.

Next events

H123 results

October 2022

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

Accsys Technologies is a research client of Edison Investment Research Limited

With its FY22 results at the end of June, Accsys provided guidance for FY23 to almost double EBITDA, mainly driven by new capacity. To fulfil the strong market demand for its high-performance wood products, Accsys aims to expand its capacity from 60,000m3 to 200,000m3 by 2025. However, the current two capacity expansions of 60,000m3 in total faced difficulties during commissioning, resulting in delays of a few months. We have lowered our estimates, incorporated prudent cost buffers for future projects and adjusted some of our assumptions within our DCF valuation.

Year end

Revenue
(€m)

EBITDA*
(€m)

Net profit*
(€m)

EPS*
(€)

EV/sales
(x)

EV/EBITDA
(x)

03/21

99.8

10.1

1.3

0.01

3.7

36.8

03/22

120.9

10.4

2.1

0.01

3.3

38.2

03/23e

153.9

20.0

9.1

0.04

2.1

16.5

03/24e

189.3

33.4

19.1

0.09

1.6

9.1

Note: *EBITDA, net profit and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Price increases offset higher input costs in FY22

Accsys’s FY22 revenues (ending 31 March) increased 21% y-o-y to €121m, largely driven by price increases, while volumes were down slightly due to capacity restraints and a temporary plant stop related to the construction of the fourth reactor in Arnhem. Several price increases offset higher input costs in FY22, resulting in an increase in normalised EBITDA of 3% y-o-y. For FY23, Accsys expects an acceleration in revenue growth from H223, driven by new capacity coming on stream, and EBITDA to nearly double from the level of €10.4m in FY22.

Capacity expansion delayed by a few months

On 30 June 2022, Accsys announced delays of a few months in the construction of both the fourth reactor in Arnhem and the Tricoya plant in Hull. There will be additional cost overruns of €1m in Arnhem and €4–7m in Hull, of which only the rework costs in Arnhem may be recoverable, according to management. We have lowered our estimates for the coming years following these delays. We still expect Accsys to be on track to realise its targeted capacity of 200,000m3 by 2025 and, at current price levels, we estimate potential revenues of more than €325m at full capacity (versus €121m in FY22).

Valuation: DCF offers upside

Accsys is trading on an EV/sales multiple of 2.1x and EV/EBITDA of 16.5x in FY23e. Our DCF model is now based on four reactors in Arnhem and one in Hull (down from previously two, as this one is not in Accsys’s stated strategy for 2025), while we add a separate value for the Accoya US joint venture (for 100% as it is under construction) and the Tricoya project in Malaysia (for only 50% as that project has yet to be committed). We have added cost contingency of €10m to the DCF of the plant in the US, to reflect our view of a prudent cost buffer given the nature of the projects and the company’s recent challenges on its projects. These new assumptions point to a value of €1.83 per share (previously €1.95).

FY22 revenue growth driven by price increases

Accsys’s FY22 results were broadly in line with the trading update released on 25 May 2022. Revenues increased 21% y-o-y to €121m, fully driven by higher prices. Accsys has raised its sales prices over the past year and this has offset the higher raw material costs, particularly for acetyls (due to the steep price increase in natural gas). Revenues from Accoya wood rose 15% to €105m (price driven) and revenues from the by-product acetic acid jumped 134% y-o-y to €13.6m (also price driven). The balance of the €120.9m group revenue came from Accoya licence revenue of €0.4m (FY21: 0.4m) and Tricoya sales of €1.5m (FY21: €2.1m).

Exhibit 1: FY22 results (ending 31 March 2022)

€m

FY21

FY22

Change y-o-y

Revenues

99.8

120.9

21%

Accoya wood volumes, m3

60,466

59,649

-1.4%

Gross margin

33.2%

29.8%

EBITDA normalised

10.1

10.4

3%

Net profit normalised

1.3

2.1

63%

Source: Accsys

Despite strong underlying demand, group volumes declined 1.4% y-o-y to 59,649m³, due to capacity restraints and a temporary plant stop in connection to the installation of the fourth reactor (as communicated on 25 May). Sales of wood to Medite and Finsa for the manufacture of Tricoya panels were down 19% y-o-y, representing 22% of total volumes (FY21: 26%), driven by an overall shift in the end-market mix at the Arnhem plant, which is at capacity. Volumes to Accoya customers increased 5% y-o-y with a strong increase in volumes to the US for market seeding of the new Accoya plant, which could be operational in mid-2024.

As expected, the gross margin declined 340bp y-o-y to 29.8%, mainly due to a threefold mix effect: (1) the first contribution of Accoya Colour, which is priced around 25% higher than traditional Accoya, (2) lower wood volumes to Medite and Finsa, which have lower prices compared to the wood for Accoya customers, and (3) lower tolling volumes (when customers supply their own wood instead of Accsys). Exhibit 2 shows the development in gross margin and also the steady increase in manufacturing gross profit per cubic metre, which recently has been largely price driven.

Exhibit 2: Gross margin development

Source: Accsys

Underlying EBITDA increased 3% in FY22 to €10.4m, with higher sales prices offsetting the higher input costs (see Exhibit 3). Normalised net profit was higher compared to FY21, mainly driven by lower interest expenses (with the group overall debt refinance in H2 of FY22) and lower taxes.

Exhibit 3: EBITDA development

Source: Accsys

Total investments increased from €13.4m in FY21 to €49.1m in FY22, of which the largest part was for the new projects, that is Arnhem (€24.7m), Hull (€18.4m) and the joint venture in the United States (€3.8m). As previously indicated on 25 May, net debt was up €15m to €27m, or €55m when adjusted for €28m of committed investments in Q123 for the Accoya joint venture in the United States. On 25 May 2022, Accsys raised new capital of €19m (net of costs), to cover cost overruns and the anticipated higher working capital for the increased capacity.

Slightly lower estimates due to delays in new capacity

Demand for Accoya and Tricoya remains strong, according to management, but Accsys is still facing capacity restraints ahead of the planned capacity expansion later this year. On 30 June 2022 the company announced further delays in the expansion of its capacity. During commissioning of the fourth reactor in Arnhem in June, some defective equipment was identified, which required remedial repair work, delaying the finalisation of the project by about eight weeks until July–September. This will also result in €1m in additional costs, which might be recoverable according to management. Accsys still anticipates a two-year ramp-up for the fourth reactor, bringing full capacity in Arnhem to 80,000m³. The first Tricoya plant in Hull was planned to be operational in July/August, but in June construction challenges and rework of certain areas were identified, resulting in further delays, with the company now targeting completion in the coming months. This will result in additional costs of €4–7m, which are not recoverable according to management. On 25 May, the company stated that the Hull plant needed additional funding of €3m and these new cost overruns of €4–7m will also need funding and Accsys is currently in negotiation with its consortium partners. One of the options is that Accsys extends its current loan of €17m to Tricoya UK.

Accsys provided FY23 guidance on 30 June 2022. Revenue growth should accelerate from the second half driven by new capacity. Once the new projects in Arnhem and Hull are operational, capacity will have doubled to 120,000m³. Price increases in January and June should form a cushion for the input pressure, while Accsys has also introduced an energy price premium from May 2022 (to mitigate the effects of volatile gas prices, which affect the acetyl raw material costs). Given this stronger revenue growth, Accsys expects to nearly double its EBITDA in FY23 (versus €10.4m last year). On 25 May, Accsys commented that a total project capex investment of €57m will fall in FY23, being largely the finalisation of the fourth reactor in Arnhem (€8–9m), the finalisation of the Hull plant (€15m) and the investment commitment of €28m for the Accoya US joint venture, for which the capital was raised in May 2021. More than 90% of the planned capex is expected to fall in the first half.

We have lowered our expected revenues for FY23 and FY24 due to the delays in Arnhem and Hull, but still expect increases of 28% y-o-y and 23% y-o-y respectively, driven by the additional capacity and pricing. Gross margin should recover in FY23, driven by price increases and increased scale, with a further increase in FY24 due to mix effects, as Tricoya potentially carries a 40% gross margin versus the 30% for Accoya. For the same reasons, we have lowered our EBITDA forecasts but still expect a doubling of EBITDA in FY23, in line with company guidance. We expect further revenue growth and scale benefits will boost EBITDA to €33.4m in FY24, delivering a margin of almost 18%.

Exhibit 4: Change in P&L estimates

€m

FY22

FY23e

FY24e

Old

Actual

Change

Old

New

Change

Old

New

Change

Sales

121.1

120.9

-0.2%

156.7

153.9

-1.8%

194.5

189.3

-2.7%

Gross margin

29.6%

29.8%

30.8%

30.4%

32.7%

32.7%

EBITDA normalised

10.4

10.4

0.1%

21.6

20.0

-7.4%

35.1

33.4

-5.0%

EBITDA margin

8.6%

8.6%

13.8%

13.0%

18.1%

17.6%

Net profit (reported)

2.1

2.4

11.3%

8.8

9.1

2.9%

18.8

19.1

1.8%

Net profit (normalised)

2.3

2.1

-7.6%

8.8

9.1

2.9%

18.8

19.1

1.8%

Source: Edison Investment Research

Management again stated that the strategy to expand its total capacity to 200,000m3 by 2025 is on track, which we summarise in Exhibit 5. We have moved up the timing of new capacity in the United States and Malaysia both by one quarter, anticipating small delays in both projects.

Exhibit 5: Accsys’s capacity plans

Location

Capacity m3

Timing of capacity

Potential revenues, €m

Arnhem, the Netherlands

80,000

July–Sept 2022

160

Hull, UK

40,000

Sept–Oct 2022

40

Kingsport, US

43,000

Q2–Q3 2024

86

Malaysia (as example of second Tricoya plant)

40,000

mid 2025

40

Total

203,000

326

Source: Accsys, Edison Investment Research

Lower valuation on adjusted DCF assumptions

For the valuation of Accsys we use a discounted cash flow (DCF) model as there are no other listed companies with a business profile close to that of Accsys. Accsys is valued at EV/sales of 2.1x and EV/EBITDA of 16.5x in FY23e. We now include four reactors in the Arnhem plant and only one in Hull (we previously assumed two in Hull, but this is not part of the company’s stated strategy for 2025). We use a DCF for the valuation of a separate Accoya and Tricoya plant and add a value for the Accoya plant in the US, which is expected to be operational in mid-2024. We also add a value for the Tricoya plant in Malaysia (or an alternative location) with a probability rate of only 50% as that project has yet to be committed. The investment decision will be taken after the Tricoya plant in Hull has been operational for at least six months (now delayed until Q1/Q2 2023).

We have changed our DCF assumptions from those detailed in our update note of 15 June. We have lowered the terminal EBIT margin from 18% to 17% (as we now assume one reactor in Hull instead of two) and we prudently have added an allowance of €10m for the risk of cost overruns for the Accoya plant in the US, although the Engineering, Procurement and Construction contract has a fixed cap and capex items have been ordered early to lock in cost pricing. On these new assumptions, our DCF suggests a fair value of €1.83 per share (previously €1.95).

Exhibit 6: Financial summary

€m

FY20

FY21

FY22

FY23e

FY24e

31-March

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue (reported)

90.9

99.8

120.9

153.9

189.3

Gross Profit

27.5

33.1

36.0

46.8

61.9

EBITDA normalised

7.0

10.1

10.4

20.0

33.4

EBITDA reported

10.0

10.2

10.3

20.0

33.4

Depreciation & Amortisation

(5.6)

(5.7)

(6.2)

(8.1)

(8.4)

EBIT normalised

1.4

4.4

4.2

12.0

25.0

Exceptionals (Edison definition)

3.0

0.1

(0.1)

0.0

0.0

EBIT reported

4.4

4.5

4.1

12.0

25.0

Net Interest

(2.9)

(4.1)

(2.3)

(3.0)

(3.5)

Results of associates

0.0

(0.1)

0.0

0.0

0.0

Profit Before Tax

1.5

0.3

1.8

9.0

21.5

Reported tax

(0.6)

(1.3)

(1.0)

(0.9)

(2.2)

Profit After Tax

0.9

(0.9)

0.7

8.1

19.4

Minority interests

1.5

1.4

1.6

1.0

(0.3)

Net profit (normalised)

(1.1)

1.3

2.1

9.1

19.1

Net profit (reported)

2.4

0.3

2.4

9.1

19.1

Average number of shares (m)

132.7

164.9

178.9

204.3

206.6

Average number of shares, diluted (m)

145.8

173.3

185.9

211.3

213.6

EPS normalised (€)

(0.01)

0.01

0.01

0.04

0.09

EPS normalised diluted (€)

(0.01)

0.00

0.01

0.04

0.09

EPS reported (€)

0.02

0.00

0.01

0.04

0.09

DPS (€)

0.00

0.00

0.00

0.00

0.00

Revenue growth

21.0%

9.8%

21.1%

27.4%

23.0%

Gross Margin

30.3%

33.2%

29.8%

30.4%

32.7%

Normalised EBITDA Margin

7.7%

10.1%

8.6%

13.0%

17.6%

Normalised Operating Margin

1.5%

4.4%

3.5%

7.8%

13.2%

Reported EBIT margin

4.8%

4.5%

3.4%

7.8%

13.2%

BALANCE SHEET

Fixed Assets

137.6

155.6

195.3

244.3

240.7

Intangible Assets

11.0

10.9

10.8

10.8

10.8

Tangible Assets

126.7

144.4

181.3

230.3

226.8

Investments & other

0.0

0.3

3.2

3.2

3.2

Current Assets

69.8

72.5

79.8

66.2

100.9

Stocks

16.9

12.3

20.4

25.9

31.9

Debtors

8.6

9.8

13.2

15.1

16.7

Other current assets

7.0

2.8

4.2

5.2

6.3

Cash & cash equivalents

37.2

47.6

42.1

19.9

46.0

Current Liabilities

24.0

42.3

45.7

50.6

58.4

Creditors

7.8

9.5

16.7

19.1

23.0

Other current liabilities

10.9

22.2

16.4

18.8

22.7

Short term borrowings

5.3

10.6

12.7

12.7

12.7

Long Term Liabilities

56.3

49.2

56.5

56.5

56.5

Long term borrowings

56.3

49.2

56.5

56.5

56.5

Other long term liabilities

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

127.1

136.6

172.9

203.4

226.7

Minority interests

34.4

37.2

35.5

35.5

35.5

Balance sheet total

207.4

228.1

275.1

310.5

341.6

CASH FLOW

Op Cash Flow before WC and tax

10.0

10.2

10.3

20.0

33.4

Working capital

(8.3)

8.3

(9.2)

(3.7)

(0.8)

Exceptional & other

(2.8)

(1.9)

(1.5)

3.5

4.0

Tax

0.2

0.1

0.1

(0.9)

(2.2)

Net interest

3.4

3.4

2.9

(3.0)

(3.5)

Net operating cash flow

2.4

20.1

2.6

15.9

30.8

Capex

(22.6)

(13.4)

(49.1)

(57.0)

(4.8)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Equity financing

52.5

9.4

34.9

19.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

(8.6)

(3.9)

(3.3)

0.0

0.0

Net Cash Flow

23.7

12.1

(14.9)

(22.1)

26.1

Opening net debt/(cash), including lease

48.1

24.3

12.2

27.2

49.3

Closing net debt/(cash), including lease

24.3

12.2

27.2

49.3

23.2

Source: Accsys Technologies, Edison Investment Research


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This report has been commissioned by Accsys Technologies and prepared and issued by Edison, in consideration of a fee payable by Accsys Technologies. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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This report has been commissioned by Accsys Technologies and prepared and issued by Edison, in consideration of a fee payable by Accsys Technologies. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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