Accsys Technologies — Accsys now owns 100% of Tricoya but Hull on hold

Accsys Technologies (AIM: AXS)

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Research: Industrials

Accsys Technologies — Accsys now owns 100% of Tricoya but Hull on hold

Accsys has provided an update on the construction of the Tricoya plant in Hull, UK. After the restructuring of the consortium, Accsys now owns 100% of Tricoya, which we think is positive. However, project costs are anticipated to be up to €35m higher than previously expected and all activities at the site have been put on hold for at least six months to mitigate the negative impact on profitability of high acetyls input prices. Accsys will assess the exact costs before it commits capital to completing the plant, which we estimate may require a capital raise of c €20m. We have reduced our estimates and increased our capex assumptions for Hull, resulting in a discounted cash flow (DCF) valuation of €0.95 per share.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Industrials

Accsys Technologies

Trading update

General industries

16 November 2022

Price

63p/€0.73

Market cap

£138m/€160m

€1.15/£

Net debt (€m) at 30 September 2022

62

Shares in issue

218.5m

Free float

60%

Code

AXS

Primary exchange

LSE

Secondary exchange

Euronext Amsterdam

Share price performance

%

1m

3m

12m

Abs

8.5

(34.2)

(58.5)

Rel (local)

(0.2)

(32.9)

(57.2)

52-week high/low

181p

54p

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

22 November 2022

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

Accsys Technologies is a research client of Edison Investment Research Limited

Accsys has provided an update on the construction of the Tricoya plant in Hull, UK. After the restructuring of the consortium, Accsys now owns 100% of Tricoya, which we think is positive. However, project costs are anticipated to be up to €35m higher than previously expected and all activities at the site have been put on hold for at least six months to mitigate the negative impact on profitability of high acetyls input prices. Accsys will assess the exact costs before it commits capital to completing the plant, which we estimate may require a capital raise of c €20m. We have reduced our estimates and increased our capex assumptions for Hull, resulting in a discounted cash flow (DCF) valuation of €0.95 per share.

Accsys now owns 100% of Tricoya but Hull on hold

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

138.5

16.0

4.9

0.02

2.0

17.0

03/24e

159.8

20.7

7.8

0.04

1.7

13.3

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

Changes to the Tricoya consortium and project costs

Following discussions about the project’s funding, Accsys has bought out its consortium partners and now owns 100% of Tricoya Technologies and Tricoya UK. The previous structure was complicated (see page 2) and the change offers Accsys the full potential of Tricoya. However, Accsys believes up to €35m of costs are still needed to complete the construction and commissioning of the plant (based on the outcome of two third-party reports), which brings the total cost to €129–138m.

Activity in Hull on hold for at least six months

Accsys has stopped all activities at the Hull construction site for at least six months, to mitigate the risk of lower profitability in the ramp up period due to high and volatile acetyls prices. In the next six months the company will assess the exact costs for completion, optimise the cash flows from its Accoya plant in Arnhem, make good progress with the construction of the US Accoya plant and explore funding options for Tricoya. We currently assume that the project will be continued but is unlikely to be operational before March 2024 at the earliest. We have reduced our estimates to include the delay in Hull and a lower margin at Accoya as it will continue to produce lower-grade Accoya for manufacturing Tricoya panels.

Lower valuation on reduced estimates

Accsys is trading on FY23e multiples of 2.0x EV/sales and 17.0x EV/EBITDA. Our DCF model is based on four reactors in Arnhem and one in Hull, while we add a value for the Accoya US joint venture (with 100% probability as it is under construction), but now leave out any valuation for the Tricoya project in Malaysia (as this will not be operational before September 2026). Our lower estimates and higher capex for Hull derive a value of €0.95 per share (previously €1.21).

Restructuring of Tricoya offers Accsys its full potential

On 12 September 2022, Accsys reiterated that it was in discussion with its consortium partners about the funding of the rising construction costs at the Tricoya plant in Hull (due to delays and COVID-19) and the continuing volatility in energy and acetyls prices, which were affecting the plant’s short-term profitability. Also in September, Accsys stated it was investigating all possible options, including changing the structure of the consortium or self-funding Hull from Arnhem's incremental cash flows over a longer period. Exhibit 1 shows the previous structure of the consortium, which was originally formed in March 2017.

Exhibit 1: Tricoya consortium structure before November 2022

Source: Accsys Technologies, H122 presentation. Note: Following the agreement with the consortium partners, only the green structure in the middle remains (with both connections now 100%).

On 2 November 2022 Accsys announced that it had become the 100% owner of Tricoya Technologies (TTL, owner of all the IP related to Tricoya) and 100% owner of Tricoya UK (TUK, the operator of the plant in Hull). Under the agreement, Accsys acquired the remaining 23.5% in TTL and 38.2% in TUK.

The consortium partners have sold their shares in TTL and TUK in return for new shares in Accsys Technologies. On 7 November, Accsys issued 5.7% of new equity (3.6% to Ineos, 1.7% to Medite and 0.4% to BGF/Volantis), which represented a value of €9.8m on 1 November based on Accsys’s share price of €0.80.

The original loan notes of €19m from BGF/Volantis have been repaid. At the start of the Tricoya consortium in March 2017, both BGF and Volantis were granted options to buy Accsys shares at 0.62p for up to a total of 14% of Accsys shares outstanding at the time. Volantis has exercised its options, but BGF still has its options.

As part of the restructuring, NatWest will write down €9m from the original loan of €15m to TUK, with a new seven-year term for the remaining €6m (with interest rolled up until the plant is operational). In a separate instrument, NatWest is entitled to recover up to €9.5m depending on the profitability of the Hull plant.

Apart from the €6m loan from NatWest, Accsys is now Tricoya’s sole owner. Ineos and Medite will remain operational partners by retaining their existing supply and offtake agreements respectively for the Hull project but 100% of the future potential of the Tricoya proposition (including licensing) now belongs to Accsys.

Third-party reports estimate cost overruns up to €35m

On 12 September Accsys stated that external parties would investigate how much capex was required to finalise the construction and commissioning of the Hull plant. That same month management commented that construction was mechanically completed for more than 90% and commissioning for about 40%. These third-party reports are now complete and indicate a further investment of up to €35m is needed to get the plant fully operational (according to management, this is largely related to commissioning). In June 2022 Accsys communicated that the total cost for the Hull project was €94–103m, thus these additional costs will bring the total investment to €129–138m, which is roughly double the €68m estimated at the start of the consortium in March 2017.

Hull plant: Construction halted for at least six months

On 12 September Accsys stated that it would investigate the impact of volatile energy and acetyls prices on the plant’s short-term profitability, indicating that the threshold for break-even would be closer to 60–70% of capacity instead of the previously communicated 40%. Given the additional required investment of up to €35m, Accsys has therefore stopped the construction and commissioning of the Hull plant for at least six months (a ‘hold period’). This will reduce the cash impact from Hull from €4m per month to around €0.5m as of November 2022, which are on top of the additional expenses of up to €35m.

During the six-month hold period Accsys will focus on the following:

It will take the time to assess the remaining costs and develop a detailed plan for finalising the construction and commissioning of the plant so there are no more surprises once the project is restarted.

Maximising profitability once the plant is operational, given the current volatile gas price which influences the price of acetic anhydride. Accsys still believes that a gross margin of 40% is achievable, although that assumes a normalisation of gas prices. Delaying the start-up of the plant may improve profitability during the operational ramp up period. The costs of acetic anhydride are proportionally higher for Tricoya than for Accoya, as the cost of the raw wood for Tricoya is much lower given it will be locally sourced wood chips. Accoya has managed the higher input costs relatively well, including the use of an energy price premium since May 2022.

Optimising cash flow from the Accoya plant in Arnhem and making good progress with the construction of the Accoya plant in the United States. In Arnhem, the fourth reactor is ramping up since it began operating in late August 2022. This could be a very important factor in the financing of the completion of the Hull plant.

After the hold period, Accsys will only commit capital to complete the Hull plant if an appropriate return can be expected. We assume that the project will continue and that a further six to nine months will be needed to finalise the construction and commissioning of the plant, which means that we assume that it will be March 2024 at the earliest before the plant is fully operational.

We note that while it is positive that Accsys now has the full potential of the Tricoya business, it also has to bear the investment on its own. There are several possibilities for the funding of the construction and commissioning of the plant in Hull:

Internal cash generation from the cash flows from the Accoya plant in Arnhem, where four reactors now operate. At current market prices, we estimate potential annual revenues from these four reactors of €180m with an EBITDA of around €40m (we estimate an EBITDA margin of 22.5%). We believe that Arnhem could generate free cash flow of €20m over the next 12 months, offering potential financing for the Hull project of around €10m in six months.

Refinancing of the current debt and possibly raising more debt based on the increasing cash flow generation of the Accoya plant in Arnhem.

New equity either via a third party (trade or financial co-investors) or an equity raise (although the company already raised €20m in May 2022, €19m net of expenses).

According to management, Accsys wants to complete the plant and it will take at least six months to decide how to proceed.

According to the company, it remains adequately capitalised and the change in the structure of Tricoya will not have a cash impact. Accsys provided a bridge loan to Tricoya UK of €17m last year (a second ranked loan facility) and in September 2022 it added an uncommitted €8m to cover cost overruns. This €8m loan is now committed and ranks joint first with the NatWest loan.

Accsys communicated that net debt stood at €62m on 30 September 2022 versus €55m at the end of March. Net debt is expected to decline by c €9.5m as NatWest will write down part of its loan to TUK and we expect cash flows to increase now that the fourth reactor in Arnhem is ramping up.

In its half year results (to be published on 22 November 2022), Accsys will most likely record a material impairment of a proportion of the tangible fixed assets related to the Hull plant (per end March 2022, assets under construction had a book value of €94m). We estimate an impairment of around €35m for Accsys’s previous share in the Tricoya business. The payment of €9.8m for the combined shares in TTL and TUK of Ineos, Medite and BGF/Volantis compares to their total investment of €50m.

Assuming internal cash flows of c €10m and potential higher debt of around €5m, this leaves an additional capital raise assumption of up to €20m in about six months’ time, depending on the outcome of the company’s assessment of how much it will cost to complete the plant in Hull.

Estimates lowered

We have reduced our revenue and EBITDA estimates for FY23–25 due to the further delays at Hull and the uncertainty about when the project will restart. We assume that it will take at least until March 2024 before the plant is operational, so we have postponed Hull’s contribution to the group’s results by about one year. We have left our FY23 estimates broadly unchanged as they already only consisted of the contribution from Accoya in Arnhem.

We have lowered our FY24 estimates as we have taken out the contribution of the Hull plant and lowered the average price and margin for Accoya as Accsys is expected to continue to produce low-grade Accoya which is chipped afterwards to produce Tricoya for market feeding by partners Medite and Finsa. The percentage decline in estimates is less for FY25 because we assume that the Hull plant will come on stream and contribute to group results in the same way as we previously planned it would do in FY24.

Exhibit 2: Change in P&L estimates

€m

FY23e

FY24e

FY25e

Old

New

Change

Old

New

Change

Old

New

Change

Sales

138.5

138.5

0.0%

183.4

159.8

-12.8%

219.2

204.6

-6.7%

Gross margin (%)

29.7%

29.7%

30.7%

29.6%

32.0%

31.8%

EBITDA normalised

16.0

16.0

0.0%

28.8

20.7

-28.1%

39.7

34.7

-12.5%

EBITDA margin (%)

11.6%

11.6%

15.7%

12.9%

18.1%

17.0%

Net profit (reported)

6.3

(26.6)

N/A

14.9

7.8

-47.5%

22.4

19.8

-11.8%

Net profit (normalised)

6.3

4.9

-23.4%

14.9

7.8

-47.5%

22.4

19.8

-11.8%

Source: Edison Investment Research

Our new estimates assume revenue growth of 15% in FY24 and 28% in FY25, driven by the ramp up of the fourth reactor in Arnhem and the first contribution of the Hull plant in FY25. EBITDA margins are expected to increase steadily as Arnhem scales up while Tricoya has a higher margin.

Despite the short-term uncertainty about the continuation of the Tricoya product, there is long-term potential for Accsys, even if it only continues with Accoya. The Arnhem plant has potential revenues of €180m with the full capacity of its four reactors (and there might be space for two more) and the first Accoya plant in the US with its 60/40 joint venture partner Eastman Chemicals has potential revenues of around €95m (with upside to around €380m if the plant is expanded to eight reactors). Current capacity plans, which include two reactors in the US, suggest revenues on a fully consolidated basis of €275m versus the €121m reported in FY22.

Optionally (if the decision is taken to continue with Tricoya), Hull could potentially contribute €50m in revenue with another €50m in revenue from a potential second Tricoya plant, for instance in Malaysia with its partner Petronas.

Lower valuation on lower estimates and higher capex

We use a DCF model as there are no other listed companies with a business profile close to Accsys’s. The company is trading on FY23e multiples of 2.0x EV/sales and 17.0x EV/EBITDA. Our current DCF model is based on four reactors at the Arnhem plant and one in Hull. We use a DCF to value a separate Accoya plant and add a value for the Accoya plant in the US, which is expected to be operational in mid-2024 after construction started in April 2022.

We previously added a value for the Tricoya plant in Malaysia (or an alternative location) with a probability rate of 50% as the final investment decision on that project had not yet been taken. But with the delay in Hull, any plans for a second Tricoya plant are delayed as well. According to management, Petronas is still interested in a Tricoya plant in Malaysia but as we have communicated previously, the Hull plant will be the blueprint for this second plant and should have been operational for at least six months before the final investment decision will be taken. If Accsys manages to get Hull operational in March 2024 it is unlikely that a second plant will be operational before September 2026. For that reason, we have left out any value for this potential plant.

Most of the other assumptions for our DCF model are unchanged. On our lower estimates and higher capex assumptions, our DCF indicates a value per share of €0.95 (previously €1.21).

Exhibit 3: Financial summary

€'m

FY21

FY22

FY23e

FY24e

FY25e

FY26e

FY27e

31-March

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue (reported)

99.8

120.9

138.5

159.8

204.6

220.5

233.6

Gross Profit

33.1

36.0

41.1

47.3

65.1

73.1

79.2

EBITDA normalised

10.1

10.4

16.0

20.7

34.7

41.8

47.0

EBITDA reported

10.2

10.3

16.0

20.7

34.7

41.8

47.0

Depreciation & Amortisation

(5.7)

(6.2)

(7.7)

(8.5)

(8.8)

(8.9)

(8.9)

EBIT normalised

4.4

4.2

8.4

12.2

25.9

32.9

38.0

Exceptionals (Edison definition)

0.1

(0.1)

(35.0)

0.0

0.0

0.0

0.0

EBIT reported

4.5

4.1

(-26.6)

12.2

25.9

32.9

38.0

Net Interest

(4.1)

(2.3)

(3.0)

(3.5)

(4.0)

(3.5)

(3.0)

Results of associates

(0.1)

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax

0.3

1.8

(29.6)

8.7

22.0

29.4

35.0

Reported tax

(1.3)

(1.0)

3.0

(0.9)

(2.2)

(2.9)

(3.5)

Profit After Tax

(0.9)

0.7

(26.6)

7.8

19.8

26.5

31.5

Minority interests

1.4

1.6

0.0

0.0

0.0

0.0

0.0

Net profit (normalised)

1.3

2.1

4.9

7.8

19.8

26.5

31.5

Net profit (reported)

0.3

2.4

(26.6)

7.8

19.8

26.5

31.5

Average number of shares (m)

164.9

178.9

207.2

218.5

218.5

218.5

218.5

Average number of shares, diluted (m)

173.3

185.9

214.2

225.5

225.5

225.5

225.5

EPS normalised (€)

0.01

0.01

0.02

0.04

0.09

0.12

0.14

EPS normalised diluted (€)

0.00

0.01

0.02

0.03

0.09

0.12

0.14

EPS reported (€)

0.00

0.01

(0.13)

0.04

0.09

0.12

0.14

DPS (€)

0.00

0.00

0.00

0.00

0.02

0.03

0.04

Revenue growth

9.8%

21.1%

14.6%

15.4%

28.0%

7.8%

6.0%

Gross Margin

33.2%

29.8%

29.7%

29.6%

31.8%

33.2%

33.9%

Normalised EBITDA Margin

10.1%

8.6%

11.6%

12.9%

17.0%

18.9%

20.1%

Normalised Operating Margin

4.4%

3.5%

6.1%

7.6%

12.7%

14.9%

16.3%

Reported EBIT margin

4.5%

3.4%

-19.2%

7.6%

12.7%

14.9%

16.3%

BALANCE SHEET

Fixed Assets

155.6

195.3

247.7

281.0

277.5

274.5

272.0

Intangible Assets

10.9

10.8

10.8

10.8

10.7

10.7

10.7

Tangible Assets

144.4

181.3

205.7

239.0

235.6

232.6

230.1

Investments & other

0.3

3.2

31.2

31.2

31.2

31.2

31.2

Current Assets

72.5

79.8

44.0

52.0

89.5

120.7

153.6

Stocks

12.3

20.4

24.3

28.1

35.9

38.7

41.0

Debtors

9.8

13.2

13.6

14.1

18.0

19.5

20.6

Other current assets

2.8

4.2

4.7

5.3

6.6

6.9

7.2

Cash & cash equivalents

47.6

42.1

1.5

4.6

28.9

55.6

84.8

Current Liabilities

42.3

45.7

46.8

51.2

61.1

63.8

65.7

Creditors

9.5

16.7

17.2

19.4

24.4

25.7

26.7

Other current liabilities

22.2

16.4

16.9

19.1

24.0

25.4

26.3

Short term borrowings

10.6

12.7

12.7

12.7

12.7

12.7

12.7

Long Term Liabilities

49.2

56.5

66.5

71.5

71.5

71.5

71.5

Long term borrowings

49.2

56.5

66.5

71.5

71.5

71.5

71.5

Other long term liabilities

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

136.6

172.9

178.5

210.3

234.5

259.9

288.3

Minority interests

37.2

35.5

35.5

35.5

35.5

35.5

35.5

Balance sheet total

228.1

275.1

291.8

333.0

367.1

395.2

425.6

CASH FLOW

Op Cash Flow before WC and tax

10.2

10.3

(19.0)

20.7

34.7

41.8

47.0

Working capital

8.3

(9.2)

(3.8)

(0.4)

(3.3)

(1.8)

(1.7)

Exceptional & other

(1.9)

(1.5)

3.5

4.0

4.5

4.0

3.5

Tax

0.1

0.1

3.0

(0.9)

(2.2)

(2.9)

(3.5)

Net interest

3.4

2.9

(3.0)

(3.5)

(4.0)

(3.5)

(3.0)

Net operating cash flow

20.1

2.6

(19.3)

19.9

29.7

41.0

45.2

Capex

(12.4)

(45.3)

(32.0)

(41.8)

(5.3)

(5.9)

(6.4)

Investments in financial assets/joint ventures

(1.1)

(3.8)

(28.0)

0.0

0.0

0.0

0.0

Equity financing

9.4

34.9

28.8

20.0

0.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

(4.9)

(6.6)

Other

(3.9)

(3.3)

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

12.1

(14.9)

(50.6)

(1.9)

24.4

30.2

32.2

Opening net debt/(cash), including lease liabilities

24.3

12.2

27.2

77.7

79.6

55.3

25.1

Closing net debt/(cash), including lease liabilities

12.2

27.2

77.7

79.6

55.3

25.1

(7.0)

Source: Accsys Technologies, Edison Investment Research


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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.

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

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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Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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.

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

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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Canadian General Investments — Recent performance affected by top-down events

Canadian General Investments (CGI) is managed by Greg Eckel at Morgan Meighen & Associates (MMA). He explains that in 2022, the stock market has been driven by macroeconomic events and investors have essentially ignored company fundamentals, which are the long-term drivers of share prices. The manager is sticking to his principles and continuing to focus on stock selection – a strategy that has led to a very commendable long-term record of outperformance. Eckel believes that stock market volatility is likely to persist as central banks need to further tighten monetary policy to combat higher inflation; he does not anticipate a repeat of the V-shaped market recovery seen during the COVID-19 pandemic. If the macroeconomic backdrop improves, the manager expects quality companies to outperform, so for now he is ‘weathering the storm’ and looking forward to sunnier times.

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