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Research: Industrials
Accsys reported stronger than expected H123 results, with significantly increased sales prices offsetting the higher raw material costs. The fourth reactor in Arnhem is ramping up quickly and Accsys expects H2 volumes to be c 50% higher than in H1. The construction of the Accoya plant in the United States is on schedule, but the Tricoya plant in Hull will take at least six months for Accsys to consider all options and validate the exact costs and funding needed for completion. We have raised our estimates and left our DCF assumptions unchanged, resulting in a value per share of €1.00.
Accsys Technologies |
Stronger than expected H123 results |
H123 results |
General industries |
8 December 2022 |
Share price performance
Business description
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Accsys Technologies is a research client of Edison Investment Research Limited |
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Accsys reported stronger than expected H123 results, with significantly increased sales prices offsetting the higher raw material costs. The fourth reactor in Arnhem is ramping up quickly and Accsys expects H2 volumes to be c 50% higher than in H1. The construction of the Accoya plant in the United States is on schedule, but the Tricoya plant in Hull will take at least six months for Accsys to consider all options and validate the exact costs and funding needed for completion. We have raised our estimates and left our DCF assumptions unchanged, resulting in a value per share of €1.00.
Year end |
Revenue |
EBITDA* |
Net profit* |
EPS* |
EV/sales |
EV/EBITDA |
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 |
147.7 |
18.1 |
6.6 |
0.03 |
1.7 |
14.1 |
03/24e |
178.9 |
26.3 |
12.0 |
0.05 |
1.4 |
9.6 |
Note: *EBITDA, net profit and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Higher sales prices drive good performance in H123
Revenues in H123 increased by 5% to €58.9m after a flat performance in the first five months of the year. The fourth reactor in Arnhem became operational in September and is ramping up. Underlying EBITDA remained stable despite challenging market conditions and production disruptions (related to the start-up of the fourth reactor). There was no further news on the stopping of construction of the plant in Hull, which was announced in early November, apart from the related non-cash impairment charge of €58m. Net debt increased by €34m to €61m, driven by investments in the United States, Arnhem and Hull and higher inventories, partly offset by the €19m capital raise (net of expenses) in May 2022.
Demand for Accoya and Tricoya remains strong
Accsys says demand for its products remains high and it provided positive guidance for H2 as it expects c 50% higher volumes than in H1. Reactors one to three in Arnhem are running at capacity, while the fourth is ramping up quickly (we estimate at 60% of its 20,000m³ capacity in H223). We have raised our estimates following the stronger H123 results and now expect 22% revenue growth in FY23 with a 370bp higher EBITDA margin of 12.3%. The construction of the US Accoya plant is on schedule to be completed in March 2024 (adding 43,000m³ capacity), while we still assume that the construction of the Tricoya plant in Hull will be continued and operational in March 2024 at the earliest (adding 40,000m³ in capacity).
Valuation: Higher value on higher pricing
Accsys is trading on FY23e multiples of 1.7x EV/sales and 14.1x EV/EBITDA. Our DCF model is based on four reactors in Arnhem and one in Hull, and we add a value for the Accoya US joint venture. On higher estimates we derive a value of €1.00 per share (previously €0.95).
Better than expected results in H123
Accsys published better than expected H123 results (to 30 September), after its trading update for the first five months on 12 September. After flat revenues to August, September was good with the first full-month contribution from the fourth reactor in Arnhem. Revenues in H1 increased 5% to €58.9m with higher-than-expected sales price increases compensating for the decline in Accoya volumes (-19% to 23,957m³ vs -24% in the first five months and in line with our estimated 24,000m³). The lower volumes were caused by continuing capacity constraints and the shutdown of the plant in Arnhem in April/May around the completion and commissioning of the fourth reactor. The average sales price for traditional Accoya was up 36% including the energy price premium since May 2022. The average price for wood sales to Medite and Finsa for the manufacture of Tricoya panels used to develop the market for Tricoya products was up 13%.
Exhibit 1: H123 results (ending 30 September 2022)
€m |
H122 |
H123 |
Change y-o-y |
Revenues |
56.2 |
58.9 |
5% |
Accoya wood volumes, m3 |
29,555 |
23,957 |
-19% |
Gross margin |
30.6% |
30.8% |
|
EBITDA normalised |
4.5 |
4.5 |
0% |
Net profit normalised |
(0.9) |
(0.9) |
0% |
Source: Accsys Technologies
Gross profit was up 5% with sales price increases offsetting the higher input costs. Group gross margin was up 20bp to 30.8% with the Accoya manufacturing margin only declining 20bp to 30.8%, which is a good result given the challenging market conditions and the production disruption in H1. Despite downwards volumes and upwards input costs pressures, underlying EBITDA was stable at €4.5m, driven by higher sales price. Exhibit 2 shows the development in EBITDA in H123, with a significant positive sales price impact of €11.1m, which can be broken down in €8.9m higher sales prices, a €0.7m energy price premium effect and a €1.5m positive currency effect. This price effect compensated for the volume decline (impact of €3.3m) and higher input prices (net acetyls price up 49% and raw wood price up 14%). Strict cost control limited the increase in other opex (excluding depreciation) to 5%.
|
Exhibit 2: Development of EBITDA in H123 versus H122 |
|
|
Source: Accsys Technologies |
Net debt in H123 increased €34.2m to €61.4m (see Exhibit 3), mainly due to the €29m investment in the Accoya JV in the United States (construction remains on schedule) and capex of €23m for the fourth reactor in Arnhem and the first Tricoya plant in Hull. Also, inventories were €12m higher ahead of the ramp up of the fourth reactor and temporary build-up of work-in-progress and finished goods. In May 2022, Accsys raised new capital of €19m (net of expenses) to strengthen its balance sheet and fund the completion of the fourth reactor in Arnhem. For the second half, management is focused on cost and cash management and a reduction in inventories, which should lead to higher cash generation in the second half. Our new estimates assume a net debt level of around €53m at end FY23.
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Exhibit 3: Development net debt in H123 |
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Source: Accsys Technologies |
Impairment of Tricoya assets
Following the restructuring of the Tricoya consortium in early November, which we commented on in our last update, Accsys has full ownership of Tricoya Technologies and Tricoya UK. The company has also put the construction of the Tricoya plant on hold for at least six months, during which period the remaining work and costs will be validated and Accsys will look into the required funding while considering all potential options for the plant. No further news was announced at the H1 results.
On 2 November, Accsys stated that it would record a material non-cash impairment of a proportion of the fixed assets related to Tricoya at the H123 results, which came in at €58m and included €3.8m in intangible fixed assets and €52.5m in tangible fixed assets. Accsys mentioned several reasons for this impairment: (1) higher capex of up to €35m for the completion of the Tricoya plant in Hull, (2) ongoing costs of €0.5m per month during the hold period, (3) a higher discount rate due to higher market interest rates, and (4) higher acetyls prices affecting future operational cash flows.
Exhibit 4 shows the impact that, according to the company, several factors could have on the valuation of the Tricoya assets (if made in isolation):
Exhibit 4: Changes to key assumptions for current impairment of €58m
Impact in €m |
|
1% increase in the market interest rates (through increasing the discount rate, which currently is 12.8%) |
10 |
1% decrease in the long-term growth rate (currently 2.5%) |
7 |
1% decrease to gross margin (currently targeted at 40%) |
4 |
Three-month extension in the hold period (currently assumed at nine months) |
2 |
€5m increase in the capital costs to bring the plant into commercial operation |
4 |
1% increase in the market interest rates (through increasing the discount rate, which currently is 12.8%) |
1% decrease in the long-term growth rate (currently 2.5%) |
1% decrease to gross margin (currently targeted at 40%) |
Three-month extension in the hold period (currently assumed at nine months) |
€5m increase in the capital costs to bring the plant into commercial operation |
Impact in €m |
10 |
7 |
4 |
2 |
4 |
Source: Accsys Technologies
According to management, Accsys wants to complete the plant and it will take at least six months to decide how to proceed. We still assume that construction will be continued, with the plant being operational in March 2024 at the earliest. This adds 40,000m³ in capacity with estimated revenues 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, depending on the outcome of the company’s assessment of how much it will cost to complete the plant in Hull.
Higher estimates on higher sales prices
According to Accsys, demand for Accoya and Tricoya remains strong with a robust customer order book over the next three months and beyond. The company is very positive for H223 as it started off well in October with volumes of 6,600m³ (including some unwinding of work in progress, thus not indicative of a monthly run rate) and it expects volumes in the second half to be c 50% higher than in H1, or c 36,000m³. According to Accsys, reactors one to three in Arnhem are running at capacity, which we think should deliver around 30,000m³ in volumes in the second half, leaving 6,000m³ for the fourth reactor, or 60% of capacity. During the analyst call, management reiterated its aim for a ramp up period of two years for the fourth reactor, but given the current forecast for H2 we think this might be realised before year-end 2023, or in 16 months.
The construction of the US Accoya plant is on schedule, with ground works and deep drilling successfully completed followed by the commencement of steelwork. Accsys still expects the plant to be operational in March 2024, adding 43,000m³ in capacity with potential revenues of €95m.
We have raised our full year revenue and EBITDA estimates after the better-than-expected H123 results, which were mainly the result of higher-than-expected sales prices (for Accoya €2,420 per m³, +36%). These also have a positive impact on FY24, so we have raised our revenue estimate by 12% and EBITDA by 27%.
Exhibit 5: Change in P&L estimates
€m |
FY23e |
FY24e |
FY25e |
||||||
Old |
New |
Change |
Old |
New |
Change |
Old |
New |
Change |
|
Sales |
138.5 |
147.7 |
6.7% |
159.8 |
178.9 |
11.9% |
204.6 |
221.4 |
8.2% |
Gross margin |
29.7% |
31.0% |
29.6% |
31.1% |
31.8% |
31.2% |
|||
EBITDA normalised |
16.0 |
18.1 |
13.0% |
20.7 |
26.3 |
27.0% |
34.7 |
34.9 |
0.5% |
EBITDA margin |
11.6% |
12.3% |
12.9% |
14.7% |
17.0% |
15.8% |
|||
Net profit (reported) |
(26.6) |
(19.7) |
-25.9% |
7.8 |
12.0 |
52.5% |
19.8 |
19.0 |
-3.8% |
Net profit (normalised) |
4.9 |
6.6 |
34.6% |
7.8 |
12.0 |
52.5% |
19.8 |
19.0 |
-3.8% |
Source: Edison Investment Research
Our updated estimates assume revenue growth of 21% in FY24 and 24% in FY25, driven by better pricing, 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. Tricoya potentially has a higher margin, but we now think that this will only become visible in FY26 as FY25 will be its first year of ramping up volumes, which means below average margins until then.
Valuation
To value Accsys we use a discounted cash flow (DCF) model as there are no other listed companies with a comparable business profile. Accsys is trading on FY23e multiples of 1.7x EV/sales and 14.1x EV/EBITDA. Our DCF model is based on four reactors in Arnhem and one in Hull and we add a separate value for the Accoya plant in the United States, which is expected to be operational in mid-2024 after construction started in April 2022. On our higher estimates and unchanged assumptions, our DCF indicates a value per share of €1.00 (previously €0.95).
Exhibit 6: Financial summary
€m |
FY21 |
FY22 |
FY23e |
FY24e |
FY25e |
Year end 31 March |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
INCOME STATEMENT |
|||||
Revenue (reported) |
99.8 |
120.9 |
147.7 |
178.9 |
221.4 |
Gross Profit |
33.1 |
36.0 |
45.7 |
55.7 |
69.1 |
EBITDA normalised |
10.1 |
10.4 |
18.1 |
26.3 |
34.9 |
EBITDA reported |
10.2 |
10.3 |
18.1 |
26.3 |
34.9 |
Depreciation & Amortisation |
(5.7) |
(6.2) |
(7.8) |
(8.6) |
(8.9) |
EBIT normalised |
4.4 |
4.2 |
10.4 |
17.7 |
26.0 |
Exceptionals (Edison definition) |
0.1 |
(0.1) |
(58.5) |
0.0 |
0.0 |
EBIT reported |
4.5 |
4.1 |
(48.1) |
17.7 |
26.0 |
Net Interest |
(4.1) |
(2.3) |
(0.3) |
(3.5) |
(4.0) |
Results of associates |
(0.1) |
0.0 |
(0.8) |
(0.8) |
(0.8) |
Profit Before Tax |
0.3 |
1.8 |
(48.4) |
14.2 |
22.0 |
Reported tax |
(1.3) |
(1.0) |
(0.6) |
(1.4) |
(2.2) |
Profit After Tax |
(0.9) |
0.7 |
(49.0) |
12.8 |
19.8 |
Minority interests |
1.4 |
1.6 |
30.2 |
0.0 |
0.0 |
Net profit (normalised) |
1.3 |
2.1 |
6.6 |
12.0 |
19.0 |
Net profit (reported) |
0.3 |
2.4 |
(19.7) |
12.0 |
19.0 |
Average number of shares (m) |
164.9 |
178.9 |
211.6 |
218.8 |
218.8 |
Average number of shares, diluted (m) |
173.3 |
185.9 |
218.6 |
225.8 |
225.8 |
EPS normalised (€) |
0.01 |
0.01 |
0.03 |
0.05 |
0.09 |
EPS normalised diluted (€) |
0.00 |
0.01 |
0.03 |
0.05 |
0.08 |
EPS reported (€) |
0.00 |
0.01 |
(0.09) |
0.05 |
0.09 |
DPS (€) |
0.00 |
0.00 |
0.00 |
0.00 |
0.02 |
Revenue growth |
9.8% |
21.1% |
22.2% |
21.1% |
23.7% |
Gross Margin |
33.2% |
29.8% |
31.0% |
31.1% |
31.2% |
Normalised EBITDA Margin |
10.1% |
8.6% |
12.3% |
14.7% |
15.8% |
Normalised Operating Margin |
4.4% |
3.5% |
7.0% |
9.9% |
11.7% |
Reported EBIT margin |
4.5% |
3.4% |
-32.6% |
9.9% |
11.7% |
BALANCE SHEET |
|||||
Fixed Assets |
155.6 |
195.3 |
189.4 |
222.4 |
218.6 |
Intangible Assets |
10.9 |
10.8 |
6.8 |
6.6 |
6.4 |
Tangible Assets |
144.4 |
181.3 |
151.4 |
184.6 |
181.1 |
Investments & other |
0.3 |
3.2 |
31.2 |
31.2 |
31.2 |
Current Assets |
72.5 |
79.8 |
72.2 |
86.2 |
121.4 |
Stocks |
12.3 |
20.4 |
25.9 |
31.4 |
38.9 |
Debtors |
9.8 |
13.2 |
12.1 |
13.2 |
16.3 |
Other current assets |
2.8 |
4.2 |
3.9 |
4.6 |
5.5 |
Cash & cash equivalents |
47.6 |
42.1 |
30.4 |
37.1 |
60.8 |
Current Liabilities |
42.3 |
45.7 |
41.0 |
46.3 |
53.4 |
Creditors |
9.5 |
16.7 |
14.2 |
16.9 |
20.5 |
Other current liabilities |
22.2 |
16.4 |
14.0 |
16.7 |
20.2 |
Short term borrowings |
10.6 |
12.7 |
12.7 |
12.7 |
12.7 |
Long Term Liabilities |
49.2 |
56.5 |
66.5 |
71.5 |
71.5 |
Long term borrowings |
49.2 |
56.5 |
66.5 |
71.5 |
71.5 |
Other long term liabilities |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Shareholders' equity |
136.6 |
172.9 |
154.2 |
190.9 |
215.2 |
Minority interests |
37.2 |
35.5 |
35.5 |
35.5 |
35.5 |
Balance sheet total |
228.1 |
275.1 |
261.7 |
308.7 |
340.1 |
CASH FLOW |
|||||
Op Cash Flow before WC and tax |
10.2 |
10.3 |
14.7 |
26.3 |
34.9 |
Working capital |
8.3 |
(9.2) |
(8.9) |
(2.0) |
(4.4) |
Exceptional & other |
(1.9) |
(1.5) |
3.5 |
4.0 |
4.5 |
Tax |
0.1 |
0.1 |
(0.6) |
(1.4) |
(2.2) |
Net interest |
3.4 |
2.9 |
(3.0) |
(3.5) |
(4.0) |
Net operating cash flow |
20.1 |
2.6 |
5.6 |
23.3 |
28.8 |
Capex |
(12.4) |
(45.3) |
(31.9) |
(41.6) |
(5.1) |
Investments in financial assets/joint ventures |
(1.1) |
(3.8) |
(28.0) |
0.0 |
0.0 |
Equity financing |
9.4 |
34.9 |
28.8 |
20.0 |
0.0 |
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Other |
(3.9) |
(3.3) |
0.0 |
0.0 |
0.0 |
Net Cash Flow |
12.1 |
(14.9) |
(25.5) |
1.7 |
23.7 |
Opening net debt/(cash), including lease liabilities |
24.3 |
12.2 |
27.2 |
52.6 |
50.9 |
Closing net debt/(cash), including lease liabilities |
12.2 |
27.2 |
52.6 |
50.9 |
27.2 |
Source: Accsys Technologies, Edison Investment Research
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Research: Consumer
Games Workshop’s (GAW’s) H123 trading update indicates an encouraging start to the year, with reported revenue and operating profit representing more than half of our full year estimate. With around three-quarters of revenue earned overseas, GAW is a beneficiary of sterling’s weakness, notably versus the US dollar, which alone, we estimate, contributed c 6% to GAW’s core revenue growth in H123. Although sterling has recently strengthened, at current exchange rates it continues to provide good support for the remainder of the year. We upgrade our FY23 and FY24 revenue estimates by c 2% due to favourable exchange rates, but maintain our prior profit estimates. Our discounted cash flow-based valuation of £100/share is unchanged ahead of publication of H123 results.
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