Accsys Technologies — Good progression shown in Q424

Accsys Technologies (AIM: AXS)

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Accsys Technologies — Good progression shown in Q424

Accsys Technologies’ FY24 results were affected by weak construction markets, particularly in Q3, but the company noticed better trading conditions in Q4. Although Accsys expects construction markets to remain subdued, the company is positive about its volume development, partly driven by its increased sales efforts. The construction of the Accoya plant in the US is complete and on schedule for operation by the end of the summer. For the Tricoya project in the UK, an external adviser has been hired and a final decision is expected before the end of September. On higher EBITDA margin estimates, our discounted cash flow (DCF) points to a value per share of €0.98 (previously €0.96).

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Investment Companies

Accsys Technologies

Good progression shown in Q424

FY24 results

General industries

8 July 2024

Price

56p/€0.65

Market cap

£133m/€156m

€1.18/£

Net debt (€m) at 31 March 2024

37.1

Shares in issue

239.3m

Free float

60%

Code

AXS

Primary exchange

LSE

Secondary exchange

Euronext Amsterdam

Share price performance

%

1m

3m

12m

Abs

(2.5)

(7.4)

(33.4)

Rel (local)

(2.1)

(10.9)

(39.8)

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

H125 results

November 2024

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

Accsys Technologies is a research client of Edison Investment Research Limited

Accsys Technologies’ FY24 results were affected by weak construction markets, particularly in Q3, but the company noticed better trading conditions in Q4. Although Accsys expects construction markets to remain subdued, the company is positive about its volume development, partly driven by its increased sales efforts. The construction of the Accoya plant in the US is complete and on schedule for operation by the end of the summer. For the Tricoya project in the UK, an external adviser has been hired and a final decision is expected before the end of September. On higher EBITDA margin estimates, our discounted cash flow (DCF) points to a value per share of €0.98 (previously €0.96).

Year end

Revenue
(€m)

EBITDA*
(€m)

Net profit*
(€m)

EPS*
(€)

EV/sales
(x)

EV/EBITDA
(x)

03/23

162.0

22.9

9.5

0.05

1.1

7.6

03/24

136.2

4.8

(10.2)

(0.04)

1.3

20.8

03/25e

134.6

8.1

(7.9)

(0.03)

1.2

14.6

03/26e

149.9

14.9

2.2

0.01

1.0

9.1

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

Lower results due to subdued construction market

As indicated in the May trading update, Q424 has developed much better than Q3, which was hit by the weak construction market and destocking at clients. The FY24 revenue decline of 16% was slightly higher than we had anticipated due to a larger-than-expected decline in sales of the by-product acetic acid. On a 400bp lower gross margin and higher opex, group EBITDA decreased 79% yoy to €4.8m (versus our estimated €4m), including the higher pre-operational costs of the Accoya plant in the US of €3m. Net debt declined €7m to €37m, with positive EBITDA and new capital offsetting capex and investments in the Accoya USA joint venture (JV).

Accoya USA plant to start operations soon

The construction of the Accoya plant in Kingsport, US, has been completed and the commissioning is well underway. Accsys expects to start the first test batches in the coming weeks and the plant is on track to be operational by the end of the summer. Initial capacity of the 60%/40% joint venture with Eastman is 43,000m³ of Accoya wood, and management still expects a ramp-up period of three years (we estimate €105m in revenues at full capacity, but the JV is equity accounted). The current volumes to the US will be transferred from the Arnhem plant to Kingsport and management expects to replace the lost volumes within 12 months of migrating to Kingsport on a run rate basis. The Tricoya project in Hull is still on hold, Accsys has hired an adviser and a resolution is expected before the end of September.

Valuation offers significant upside

We have lowered our FY25 and FY26 revenue forecasts by 4.5–6.4% due to the lower base in FY24, our FY25 EBITDA forecast is -9% due to a decline in revenues and our FY26 EBITDA is up 1.4% due to stronger leverage. Our DCF model is based on the Arnhem plant and we add a separate value for the Accoya USA JV, pointing to a value per share of €0.91 (previously €0.89). The option value for Hull adds €0.07/ share (unchanged), bringing Accsys’s value per share to €0.98 (previously €0.96).

Lower results due to subdued market conditions

Accsys’s FY24 results (ending 31 March 2024) showed lower revenues and margin pressure due to subdued construction markets and destocking at its clients, particularly in Q3. Accoya wood volumes were down 11% y-o-y after an increase of 20% in H124. According to management, there were two key positives: Accoya Color showing double-digit volume growth with good demand in the DACH region; and 14% volume growth in Accoya for Tricoya, supported by Accsys’s offtake partners Medite and Finsa. Revenues were lower than we had anticipated, mainly due to a larger-than-expected decline in revenues from the sale of acetic acid (a by-product of the acetylation process). In November 2023, when the company warned of weaker market conditions, Accsys announced an increase in investments in sales and marketing, and that seems to have paid off. Q4 was much better than Q3, with 40% q-o-q growth and an increase in demand since January.

Exhibit 1: FY24 results (ending 31 March 2024)

€m

FY23

FY24

Change y-o-y

Revenues

162.0

136.2

-16%

Accoya wood volumes, m3

63,344

56,568

-11%

Gross profit

55.2

40.9

-26%

Gross margin total

34.0%

30.0%

Gross margin Accoya wood

34.2%

30.7%

EBITDA normalised (including US joint venture)

22.9

4.8

-79%

Net profit normalised

9.5

(10.2)

N/A

Source: Accsys Technologies

Accsys managed to keep sales prices relatively stable (Accoya -0.4% y-o-y and Accoya for Tricoya 1.3% y-o-y) in a market environment where competitors in hard wood and other modified materials materially reduced their prices. The average sales price for the group was 4% lower y-o-y, due to the mix effect (higher growth in lower priced Accoya for Tricoya), a decrease in sales of the by-product acetic acid and discounts in the US (ahead of the new plant being operational). There was also a negative impact from the non-recurrence of the energy surcharge (€3.9m), which was implemented at the time of the energy price hike in the last financial year.

Exhibit 2: Progression of EBITDA in FY24 versus FY23

Source: Accsys Technologies

Gross margin declined 400bp to 30.0% after a decline of 220bp in the first half of the year. This was due to lower sales volumes, the modestly higher average wood prices and higher wood mix costs. These were only partly offset by lower net acetyls costs (which are gas price related). The Accoya wood gross margin was 350bp lower at 30.7%. This was still above the company’s ambition of at least 30%, but at the lower end of the realised range over the past five years of 30–34%.

With higher opex, EBITDA decreased by 79% y-o-y to €4.8m (Exhibit 2 shows the development of EBITDA in FY24). This result includes higher sales and marketing costs, higher pre-operational costs in the Accoya USA plant of €3m and higher running costs of €1.1m for the Tricoya UK project.

Net debt in FY24 declined €7m to €37m (see Exhibit 3 for a net debt bridge), with capex and the investment in the Accoya USA JV compensated for by the positive EBITDA and the proceeds of the equity raise in November 2023. Working capital was a negative €3m, with a decrease in payables partially compensated for by €4.2m lower inventories. Free cash flow showed a positive development from a negative €13.6m last year to €3.7m this year.

Exhibit 3: Net debt bridge in FY24

Source: Accsys Technologies

Accoya USA starts soon; decision on Hull before H225

As mentioned above, the Arnhem plant faced weaker market conditions, particularly in Q3, but still maintained a good gross margin level of 30.7%. Cost saving measures were initiated in FY24, and in FY25 the focus will be on reliability and improvement measures, including cost conversion. Accsys will launch its Solid Roots programme in Arnhem, which aims to create a mature manufacturing facility and which includes supply chain optimisation and improvements, and creating manufacturing excellence. More details on this programme will be provided at the planned investor day in H225.

In the US, the construction of the Accoya plant in Kingsport is complete and commissioning is well underway. Accsys expects to start the first production test batches over the coming weeks and still expects the plant to be operational towards the end of the summer. The plant has an initial capacity of 43,000m³ with two reactors, which we estimate will generate revenues of €105m at full capacity. As previously communicated, the site includes space for six additional reactors. Accsys operates in the US via the 60%/40% JV with Eastman, which is equity accounted for. The JV’s results are not included in Accsys’s revenues and EBITDA, however the company also reports an adjusted EBITDA that includes the results.

The Tricoya project in Hull has been on hold since November 2022 but management still believes in the long-term market potential of Tricoya panel products, with the support of offtake partners Medite and Finsa. Good volume growth of 14% in Accoya wood to produce Tricoya was recorded in FY24 and Accsys distributed more Tricoya panels in comparison to last year, to, among others, the US and Australia (revenues up from €1.4m to €4.1m). The company has hired an external adviser and management will take a decision on Hull before the end of September. The initial plans for Hull were a capacity of 24,000 tonnes (equivalent to 40,000m³), with estimated revenues of around €50m at full capacity. We do not take a Tricoya plant into account in our model but still believe that a restart of the construction is possible. Operational running costs are €6m on an annual basis until a decision has been made, and if Accsys decides to continue the plant, it will not be operational before FY26 (and an estimated capex of around €35m will be needed to complete the plant).

Aiming for 100,000m³ in volumes by end FY27

In the analyst call, Accsys CEO Jelena Arsic van Os, who is now a year into the job, discussed the company’s strategic trajectory, which started in FY24 with a re-focus of its organisation and which delivered a cost reduction of €2.7m in H224. During the second half, Accsys invested in demand creation by increasing the number of sales and marketing staff and by adding 10 new clients, seven of which are distributors and three are direct manufacturers. The company also secured €24m in new capital, which fully covered the costs of the completion of the Accoya USA plant.

FY25 will be a transformational year during which the Focus strategy will be launched, which should drive performance and operational excellence, and the Accoya USA plant will be operational, adding 43,000m³ in Accoya capacity.

From FY25 Accsys aims to re-enter a growth phase with leveraging the benefits from greater economies of scale associated with the ramp-up of Accoya USA in Kingsport. The company is aiming for around 100,000m³ in sales volume by the end of FY27, which would reflect growth of around 80% compared to FY24. This could be supported by good growth of the global wood products market, for which The Business Research Company expects a CAGR of 7% in 2024–28. The Accoya USA JV is equity accounted for, thus the P&L will only show the volumes from the Arnhem plant, which we estimate at 70,000m³ for FY27.

Gross margin is expected to move up in the range of 30–34% (currently at the low end), driven by the benefits of economies of scale. According to the company, the group EBITDA margin for continuing operations of 18% in FY23 was exceptional and the level in FY21 and FY22 of 11–14% is a better indication for the years to come. The eventual outcome is still dependent on the development of the wood and acetic acid prices.

Fine-tuning estimates after recent raise

Accsys did not provide specific guidance for FY25 but mentioned several factors that would influence the performance in the current financial year:

Despite a continued subdued construction market, Accsys has had a good start to the year and management expects improvements in Arnhem and Barry (Accoya Color). The orderbook is considered quite good for both Arnhem and Kingsport, driven by the increased commercial activity company wide.

Ramp-up of volumes at the new Accoya USA plant from the end of summer. Current volumes sold to the US will be transferred from Arnhem to Kingsport to provide a kick-start for the new plant (volumes to the US were 9,285m³ in FY24). Management still expects a ramp-up period of three years towards capacity of 43,000m³.

The Arnhem plant is expected to replace the lost volumes to the US plant within 12 months after the start of operations at the plant in Kingsport on a run rate basis, which reflects double-digit volume growth. This hints at a return to volume growth from FY26 after more or less stable volumes in FY25 as a result of the transfer of volumes to the US.

Accsys expects the full effect of €3m of cost saving measures that were initiated in the previous financial year.

Corporate costs of €4.6m are a good indication going forward. Part of the realised cost savings fall within corporate costs.

Accsys expects to benefit from larger economies of scale once the plant in the US has started operations. This hints at better margins in FY25 compared to FY24.

Working capital discipline with modest capex in the range of €3–4m. The company’s financial position is sufficient for starting up the plant in the US. The potential decision to continue with the Hull project will require estimated capex of around €35m, for which a capital raise or a capital injection from a partner might be needed.

Following Accsys’s trading update in May, we adjusted our estimates upwards and we now fine-tune them. As the revenue base of FY24 was 4.5% lower than we had anticipated, due to the larger-than-expected decline in acetic acid sales, we have also lowered our revenue estimates for the next few years, but have also incorporated the gradual positive effect of the investments in sales and marketing. We have adjusted our revenue forecast by 6.4% for FY25 and 4.5% for FY26.

As we now expect a revenue decline in FY25 we also lower our EBITDA forecast for that year by 9%. With a return to revenue growth in FY26 we now expect a stronger leverage effect, which results in an increase in our FY26 EBITDA forecast by 1.4%.

Exhibit 4: Change in P&L estimates

€m

FY24

FY25e

FY26e

Old

Actual

Change

Old

New

Change

Old

New

Change

Sales

142.5

136.2

-4.5%

143.8

134.6

-6.4%

156.9

149.9

-4.5%

Gross margin

29.4%

30.0%

29.3%

29.8%

30.5%

31.4%

EBITDA normalised

4.0

4.8

20.7%

8.9

8.1

-9.0%

14.7

14.9

1.4%

EBITDA margin

4.4%

6.3%

6.5%

8.0%

8.9%

10.9%

Net profit (reported)

(17.1)

(17.9)

(7.1)

(7.9)

10.7%

2.3

2.2

-2.0%

Net profit (normalised)

(9.2)

(10.2)

10.6%

(7.1)

(7.9)

10.7%

2.3

2.2

-2.0%

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

Our new estimates assume a revenue decline of 1% y-o-y in FY25, anticipating that the plant in Arnhem will not fully absorb yet the lost volumes to the plant in the US (which is not consolidated in Accsys’s P&L). Management has indicated to expect to replace the lost volumes within 12 months after migration to the US on a run rate basis. For FY26, we expect stronger revenue growth of 11% y-o-y, driven by improving market conditions and the contribution of new clients as a result of increased sales and marketing efforts.

Valuation

For the valuation of Accsys we use a DCF model as there are no other listed companies with a comparable business profile. Our model is based 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 by the end of summer 2024, now that the first test batches are expected in the coming weeks. Our DCF indicates a value per share of €0.91 (€0.89 previously). The option value for Hull adds €0.07 per share (unchanged), bringing Accsys’s value per share to €0.98 (previously €0.96).

Exhibit 5: Financial summary

€m

FY22

FY23

FY24

FY25e

FY26e

Year end 31 March

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue (reported)

120.9

162.0

136.2

134.6

149.9

Gross Profit

36.0

55.2

40.9

40.2

47.0

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

10.4

22.9

4.8

8.1

14.9

EBITDA underlying, excl share Accoya USA JV

10.6

23.6

8.5

10.8

16.4

EBITDA reported

10.3

22.1

7.3

10.8

16.4

Depreciation & Amortisation

(6.2)

(8.3)

(9.6)

(9.6)

(9.1)

EBIT normalised

4.2

15.3

(1.0)

1.2

7.2

Exceptionals (Edison definition)

(0.1)

(87.5)

(8.2)

0.0

0.0

EBIT reported

4.1

(-72.2)

(-9.2)

1.2

7.2

Net Interest

(2.3)

6.1

(3.8)

(4.3)

(3.5)

Results of associates/Accoya USA JV

0.0

(1.0)

(4.1)

(5.1)

(1.1)

Profit Before Tax

1.8

(67.1)

(17.1)

(8.2)

2.6

Reported tax

(1.0)

(2.8)

(0.8)

0.3

(0.4)

Profit After Tax

0.7

(69.9)

(17.9)

(7.9)

2.2

Minority interests

1.6

30.8

0.0

0.0

0.0

Net profit (normalised)

1.9

9.5

(10.2)

(7.9)

2.2

Net profit (reported)

2.4

(39.0)

(17.9)

(7.9)

2.2

Average number of shares (m)

190.4

210.7

227.9

239.3

239.3

Average number of shares, diluted (m)

198.9

219.1

234.9

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)

(0.08)

(0.03)

0.01

DPS (€)

0.00

0.00

0.00

0.00

0.00

Revenue growth

21.1%

34.1%

-16.0%

-1.1%

11.3%

Gross Margin

29.8%

34.0%

30.0%

29.8%

31.4%

Normalised EBITDA Margin

8.8%

14.6%

6.3%

8.0%

10.9%

Normalised Operating Margin

3.5%

9.4%

-0.8%

0.9%

4.8%

Reported EBIT margin

3.4%

-44.5%

-6.8%

0.9%

4.8%

BALANCE SHEET

Fixed Assets

195.3

151.4

138.9

140.9

136.5

Intangible Assets

10.8

10.5

10.0

9.6

9.2

Tangible Assets

181.3

110.1

97.2

91.6

86.5

Investments & other

3.2

30.9

31.7

39.7

40.7

Current Assets

79.8

75.1

71.0

67.5

79.1

Stocks

20.4

29.9

25.7

25.4

28.3

Debtors

13.2

14.4

14.0

14.6

16.2

Other current assets

4.2

4.1

3.8

4.0

4.4

Cash & cash equivalents

42.1

26.6

27.4

23.5

30.1

Current Liabilities

45.7

42.5

26.2

25.2

27.0

Creditors

16.7

17.9

11.8

11.7

12.7

Other current liabilities

16.4

14.0

13.7

12.9

13.6

Short term borrowings

12.7

10.5

0.7

0.7

0.7

Long Term Liabilities

56.5

61.6

65.0

65.0

65.0

Long term borrowings

56.5

60.2

63.9

63.9

63.9

Other long term liabilities

0.0

1.4

1.1

1.1

1.1

Shareholders' equity

172.9

122.5

118.8

118.3

123.6

Minority interests

35.5

0.0

0.0

0.0

0.0

Balance sheet total

275.1

226.5

210.0

208.5

215.6

CASH FLOW

Op Cash Flow before WC and tax

7.3

28.2

3.6

10.8

16.4

Working capital

(9.2)

(6.1)

(1.8)

(1.4)

(3.2)

Exceptional & other

1.4

0.6

1.5

1.5

1.5

Tax

0.1

0.1

0.1

0.3

(0.4)

Net interest

2.9

(6.1)

3.8

(3.5)

(3.0)

Net operating cash flow

2.5

16.6

7.1

7.7

11.3

Capex

(45.3)

(30.2)

(3.5)

(3.6)

(3.7)

Investments in financial assets/joint ventures

(3.8)

(29.0)

(4.9)

(8.0)

(1.0)

Equity financing

34.9

19.2

12.7

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

(3.3)

6.6

(4.5)

0.0

0.0

Net Cash Flow

(15.0)

(16.8)

6.9

(3.9)

6.6

Opening net debt/(cash), including lease liabilities

12.2

27.3

44.1

37.1

41.0

Closing net debt/(cash), including lease liabilities

27.3

44.1

37.1

41.0

34.4

Source: Accsys Technologies, Edison Investment Research

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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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Helios Underwriting — Delivery into a strong underwriting cycle

Helios Underwriting (Helios) delivered strong EPS of 21.6p in FY23, from a loss of 3.1p in FY22, ahead of our 14.7p forecast. On 7 June, the company announced that CEO Martin Reith had stepped down, with Michael Wade taking over as executive chair. Mr Reith had driven a strategy of investment in internal capabilities and Lloyd’s of London (Lloyd’s) capacity expansion via tenancy capacity and promotor activities. While Helios will still pursue select capacity acquisition, indications are that future strategy will increasingly be focused on extracting value from the existing portfolio, with greater shareholder distributions through dividends and share buybacks. We have updated our forecasts based on the FY23 performance and underwriting outlook, paring back our near-term capacity growth forecasts but allowing for a more liberal distribution policy. We have cut our EPS forecasts by 5.5% in FY24 and 1.9% in FY25, and introduce FY26 forecasts. Our valuation is unchanged at 280p/share, supported by higher distributions.

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