Accsys Technologies — FY24 better than previously expected

Accsys Technologies (AIM: AXS)

Last close As at 12/07/2024

GBP0.54

−0.90 (−1.64%)

Market capitalisation

GBP130m

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Research: Industrials

Accsys Technologies — FY24 better than previously expected

In its pre-close FY24 trading update, Accsys stated that trading in Q424 was better than expected and cost saving measures are on track to deliver more than €3m annually. Management now expects adjusted group FY24 EBITDA to be higher than consensus of €2.5m. It also commented that the construction of the Accoya USA plant is still on track to begin commercial operations in mid-2024 and it is committed to make a decision on the Tricoya project in the UK in H125. On higher estimates, our discounted cash flow (DCF) points to a value per share of €0.96 (previously €0.86).

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Industrials

Accsys Technologies

FY24 better than previously expected

Pre-close trading update

General industries

29 May 2024

Price

57p/€0.70

Market cap

£136m/€168m

€1.18/£

Net debt (€m) at end March 2024

37

Shares in issue

239.3m

Free float

60%

Code

AXS

Primary exchange

LSE

Secondary exchange

Euronext Amsterdam

Share price performance

%

1m

3m

12m

Abs

1.4

6.7

(21.9)

Rel (local)

(0.5)

(1.5)

(28.1)

52-week high/low

107p

50p

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

FY24 results

June 2024

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

Accsys Technologies is a research client of Edison Investment Research Limited

In its pre-close FY24 trading update, Accsys stated that trading in Q424 was better than expected and cost saving measures are on track to deliver more than €3m annually. Management now expects adjusted group FY24 EBITDA to be higher than consensus of €2.5m. It also commented that the construction of the Accoya USA plant is still on track to begin commercial operations in mid-2024 and it is committed to make a decision on the Tricoya project in the UK in H125. On higher estimates, our discounted cash flow (DCF) points to a value per share of €0.96 (previously €0.86).

Year end

Revenue
(€m)

EBITDA*
(€m)

Net profit*
(€m)

EPS*
(€)

EV/sales
(x)

EV/EBITDA
(x)

03/22

120.9

10.4

1.9

0.01

3.3

38.1

03/23

162.0

22.9

9.5

0.05

1.1

7.6

03/24e

142.5

4.0

(9.2)

(0.04)

1.1

25.8

03/25e

143.8

8.9

(7.1)

(0.03)

1.1

17.4

Note: *EBITDA, net profit and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items. EBITDA includes 60% share of Accoya USA joint venture.

Higher estimates on better trading and costs savings

In September 2023 Accsys had warned that the markets were weaker which has resulted in a volume decline of 30% yoy in H224 (to March 2024) after an increase of 20% y-o-y in H124. The full-year volume decline of 11% y-o-y was nevertheless better than management had expected, due to resilient trading in Q4 and the first effects of its investments in sales and marketing. Cost saving measures are also on track, with the first effects from Q424. As a result, management now expects adjusted group EBITDA to be higher than consensus of €2.5m. Net debt declined €11m to €37m versus the end of September 2023, mainly due to the capital raise of €34m in November (of which €24m was new money) but also a significant decline in inventories of €9m in the three months to March 2024. We have raised our estimates after the better-than-expected results for FY24, and our adjusted group EBITDA estimate is now €4.0m (vs €2.5m previously).

Accoya USA on track and Hull decision due in H125

Accsys stated that Accoya USA (a 60%–40% joint venture with Eastman Chemicals) has begun commissioning and the plant is still on track to be operational mid-2024 (July/August). This plant will have an initial capacity of 43,000m3, which we estimate will generate revenues of €105m at full capacity. The construction of the Tricoya plant in Hull has been on hold since November 2022 and Accsys recently hired a financial adviser to assist in the search for a strategic and/or financial partner. Management will make an investment decision in H125. While our estimates do not take the Tricoya plant into account, we still believe that the project will go ahead, although it will most likely not be operational before H226.

Valuation higher on raised estimates

We base our DCF model on estimates for the Arnhem plant and include a value for the Accoya USA joint venture. On higher estimates, this DCF points to a value per share of €0.89 (was €0.79). The option value for Hull adds €0.07 per share (unchanged), bringing Accsys’s valuation per share to €0.96 (previously €0.86).

Better than expected EBITDA in FY24

Last September, Accsys warned of weaker market conditions, which resulted in lower demand for its products in the second half of its financial year (ending 31 March 2024). After good volume growth of 20% in H124, volumes dropped 30% in the second half. Volumes in FY24 were 11% lower at 56,658m3, with management commenting that trading was resilient in Q424. The company has increased investments in sales and marketing and it also added new distribution channels, which will show their full positive impact in the next financial year.

With better-than-expected trading in the fourth quarter and initiated cost-saving measures delivering more than €3m in savings on a run-rate basis, Accsys now expects the FY24 adjusted group EBITDA to be higher than consensus of €2.5m. We believe this suggests that adjusted group EBITDA in the second half was at least equal to the reported €1.6m in H124, despite weaker market conditions.

Net debt in FY24 declined €11m to €37m compared to €48m in H124, because of the new funding in November 2023 of €24m and strict working capital management, with €9m of inventory reduction realised in the three months to 31 March 2024.

On 16 May 2024, Accsys announced that its CFO, Steven Salo, would step down with immediate effect. Hans Pauli will be interim CFO until a new CFO has been found. He is currently director of corporate development of Accsys and has been with the company for 14 years, including three years as CFO.

US plant on track; decision on Hull expected in H125

For the existing plants in Arnhem, the Netherlands, (capacity up to 80,000m3) and Barry, Wales, (Accoya Colour), the focus is on further improving efficiency. In Arnhem, there is ample room for growth given the sales volume of 56,658m3 in FY24. On top of that, the start of operation of the Accoya plant in the US will free up expected volumes of 10,000m3 over the period in which the new plant will be ramping up.

At the time of the H124 results in November 2023, Accsys stated that the construction of the Accoya USA plant was on track, with construction c 78% complete and equipment setup c 87% complete. The company has now commented that it has begun commissioning on its newly constructed plant, which is still on schedule to be operational by mid-2024. The plant will have an initial capacity of 43,000m3, which we estimate will generate revenues of €105m at full capacity. Accsys operates in the US via the 60%/40% joint venture, which is equity accounted for and the results are not included in Accsys’s revenues and EBITDA. Accsys, however, also reports an adjusted EBITDA, which includes the result of the joint venture.

The Tricoya project in Hull has been on hold since November 2022 and management previously stated it would undertake a review of the viability, strategic interest and financial capabilities of this project in early CY24. Management now states that it is committed to coming to a resolution with respect to the future of its Tricoya plant in Hull in H125, which is in the April to September 2024 period. The company has hired a financial advisor to help with the search for a strategic and/or financial partner. The Hull plant was planned to have an initial capacity of up to 40,000m3, which we estimate would deliver revenues of €50m at full capacity. While our model and financial projections do not include contributions from the Tricoya plant, we still believe that the project will continue, although it will most likely not be operational before H226. Until the final decision, operational running costs are estimated at €1.5m per quarter, while we expect an additional capex of around €35m is needed to complete the plant.

Raising EBITDA estimates

Following Accsys’s positive trading update of better-than-expected trading in Q424 and the adjusted group EBITDA being ahead of consensus of €2.5m, we have raised our EBITDA estimates. We keep our revenue forecast broadly stable for FY24 as we expect that pricing will have been better than expected (+2% versus previously 0% after +5% in H124), while our volumes estimate of 57,363m3 appears to be too optimistic. For FY25 and FY26 we raise our revenue forecast by 2% after the better-than-expected trading in Q424.

We now expect FY24 adjusted group EBITDA of €4m, up from €2.5m previously, and consequently also slightly raise our FY25 and FY26 forecasts to incorporate the full effect of cost savings and slightly higher revenue levels.

Exhibit 1: Change in P&L estimates

€m

FY24e

FY25e

FY26e

Old

New

Change

Old

New

Change

Old

New

Change

Sales

141.9

142.5

0.4%

141.0

143.8

2.0%

153.7

156.9

2.1%

Gross margin

29.3%

29.4%

29.0%

29.3%

30.2%

30.5%

EBITDA normalised

2.5

4.0

61.7%

6.7

8.9

31.7%

12.4

14.7

18.6%

EBITDA margin

3.3%

4.4%

5.1%

6.5%

7.6%

8.9%

Net profit (reported)

(19.2)

(17.1)

N/A

(9.8)

(7.1)

N/A

(0.5)

2.3

N/A

Net profit (normalised)

(11.3)

(9.2)

N/A

(9.8)

(7.1)

N/A

(0.5)

2.3

N/A

Source: Edison Investment Research. Note: *EBITDA normalised for amortisation and exceptional items and includes the 60% share in the Accoya USA joint venture.

Our updated estimates assume a revenue decline of 12% y-o-y in FY24 followed by 1% growth in FY25 (previously -1%) as we expect markets to gradually improve. For FY26, we expect stronger growth of 9%, driven by better market conditions and the full effects of the company’s investments in sales and marketing. EBITDA margins are expected to increase steadily from FY25 as Arnhem scales up and assuming market conditions return to normal.

Valuation

We use a DCF model for the valuation of Accsys, as there are no other listed companies with a comparable business profile. We base our DCF model on the four reactors in Arnhem and we add a separate value for the Accoya plant in the US, which is expected to be operational in mid-2024 now that commissioning has begun. On our higher estimates, our DCF indicates a value per share of €0.89 (€0.79 previously). The option value for Hull adds €0.07 per share (unchanged), bringing Accsys’s valuation per share to €0.96 (previously €0.86).


Exhibit 2: Financial summary

€m

FY22

FY23

FY24e

FY25e

FY26e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue (reported)

120.9

162.0

142.5

143.8

156.9

Gross Profit

36.0

55.2

42.0

42.2

47.8

EBITDA underlying, Accsys definition (incl share Accoya USA JV)

10.4

22.9

4.0

8.9

14.7

EBITDA underlying, excl share Accoya USA JV

10.6

23.6

6.2

9.4

14.0

EBITDA reported

10.3

22.1

5.0

9.4

14.0

Depreciation & Amortisation

(6.2)

(8.3)

(9.5)

(9.5)

(9.1)

EBIT normalised

4.2

15.3

(3.3)

(0.2)

4.9

Exceptionals (Edison definition)

(0.1)

(87.5)

(8.2)

0.0

0.0

EBIT reported

4.1

(-72.2)

(-11.5)

(-0.2)

4.9

Net Interest

(2.3)

6.1

(3.8)

(4.6)

(4.4)

Results of associates/Accoya USA jv

0.0

(1.0)

(3.5)

(2.9)

1.8

Profit Before Tax

1.8

(66.0)

(15.3)

(4.8)

0.5

Reported tax

(1.0)

(2.8)

1.7

0.5

(0.1)

Profit After Tax

0.7

(68.8)

(13.6)

(4.2)

0.4

Minority interests

1.6

30.8

0.0

0.0

0.0

Net profit (normalised)

1.9

9.5

(9.2)

(7.1)

2.3

Net profit (reported)

2.4

(39.0)

(17.1)

(7.1)

2.3

Average number of shares (m)

190.4

210.7

229.3

239.3

239.3

Average number of shares, diluted (m)

198.9

219.1

236.3

246.3

246.3

EPS normalised (€)

0.01

0.05

(0.04)

(0.03)

0.01

EPS normalised diluted (€)

0.01

0.04

(0.04)

(0.03)

0.01

EPS reported (€)

0.01

(0.19)

(0.07)

(0.03)

0.01

DPS (€)

0.00

0.00

0.00

0.00

0.00

Revenue growth

21.1%

34.1%

-12.0%

0.9%

9.1%

Gross Margin

29.8%

34.0%

29.4%

29.3%

30.5%

Normalised EBITDA Margin

8.8%

14.6%

4.4%

6.5%

8.9%

Normalised Operating Margin

3.5%

9.4%

-2.3%

-0.1%

3.1%

Reported EBIT margin

3.4%

-44.5%

-8.1%

-0.1%

3.1%

BALANCE SHEET

Fixed Assets

195.3

151.4

152.4

155.3

151.8

Intangible Assets

10.8

10.5

10.1

9.8

9.5

Tangible Assets

181.3

110.1

98.4

93.7

89.5

Investments & other

3.2

30.9

43.9

51.9

52.9

Current Assets

79.8

75.1

76.4

68.5

75.1

Stocks

20.4

29.9

23.2

24.1

26.3

Debtors

13.2

14.4

11.4

12.1

13.2

Other current assets

4.2

4.1

3.3

3.5

3.8

Cash & cash equivalents

42.1

26.6

38.5

28.8

31.8

Current Liabilities

45.7

42.5

40.2

38.2

39.6

Creditors

16.7

17.9

16.7

15.6

16.6

Other current liabilities

16.4

14.0

13.0

12.1

12.5

Short term borrowings

12.7

10.5

10.5

10.5

10.5

Long Term Liabilities

56.5

61.6

66.6

66.6

66.6

Long term borrowings

56.5

60.2

65.2

65.2

65.2

Other long term liabilities

0.0

1.4

1.4

1.4

1.4

Shareholders' equity

172.9

122.5

122.0

119.0

120.7

Minority interests

35.5

0.0

0.0

0.0

0.0

Balance sheet total

275.1

226.5

228.7

223.8

226.9

CASH FLOW

Op Cash Flow before WC and tax

7.3

28.2

5.0

9.4

14.0

Working capital

(9.2)

(6.1)

8.3

(3.7)

(2.2)

Exceptional & other

1.4

0.6

0.4

0.4

0.4

Tax

0.1

0.1

1.7

0.5

(0.1)

Net interest

2.9

(6.1)

(3.1)

(3.7)

(3.5)

Net operating cash flow

2.5

16.6

12.3

2.8

8.6

Capex

(45.3)

(30.2)

(4.5)

(4.5)

(4.6)

Investments in financial assets/joint ventures

(3.8)

(29.0)

(13.0)

(8.0)

(1.0)

Equity financing

34.9

19.2

12.0

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

(3.3)

6.4

0.0

0.0

0.0

Net Cash Flow

(15.0)

(16.9)

6.9

(9.7)

3.0

Opening net debt/(cash), including lease liabilities

12.2

27.3

44.2

37.3

47.0

Closing net debt/(cash), including lease liabilities

27.3

44.2

37.3

47.0

44.0

Source: Accsys Technologies, Edison Investment Research

General disclaimer and copyright

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.

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General disclaimer and copyright

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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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.

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20 Red Lion Street

London, WC1R 4PS

United Kingdom

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