Accsys Technologies — Stronger than expected volume growth in Q4

Accsys Technologies (AIM: AXS)

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Research: Industrials

Accsys Technologies — Stronger than expected volume growth in Q4

Accsys showed stronger than expected volume growth of 6% in FY23, beating our 1% estimate. Reactors 1–3 in Arnhem are in full production and the fourth is ramping up faster than we expected. There was no news on the Tricoya project in Hull, but construction of the Accoya plant in the US is delayed by four to five months and faces cost inflation. The company’s EBITDA guidance is now ‘moderately ahead’ of doubling to €20.8m previously. Our DCF value still points at €1.15 per share, including >€0.20 as option value for Hull, which we have taken out of our FY25 estimates.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Industrials

Accsys Technologies

Stronger than expected volume growth in Q4

FY23 guidance update

General industries

10 May 2023

Price

64p/€0.76

Market cap

£140m/€167m

€1.15/£

Net debt (€m) at 31 March 2023

44

Shares in issue

219.4m

Free float

60%

Code

AXS

Primary exchange

LSE

Secondary exchange

Euronext Amsterdam

Share price performance

%

1m

3m

12m

Abs

2.5

(24.7)

(54.3)

Rel (local)

1.6

(23.3)

(56.0)

52-week high/low

135p

55p

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

FY23 results

27 June 2023

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

Accsys Technologies is a research client of Edison Investment Research Limited

Accsys showed stronger than expected volume growth of 6% in FY23, beating our 1% estimate. Reactors 1–3 in Arnhem are in full production and the fourth is ramping up faster than we expected. There was no news on the Tricoya project in Hull, but construction of the Accoya plant in the US is delayed by four to five months and faces cost inflation. The company’s EBITDA guidance is now ‘moderately ahead’ of doubling to €20.8m previously. Our DCF value still points at €1.15 per share, including >€0.20 as option value for Hull, which we have taken out of our FY25 estimates.

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

159.8

21.7

10.2

0.05

1.3

9.8

03/24e

184.4

26.7

12.4

0.06

1.1

7.9

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

Fourth reactor shows faster than expected ramp up

In its trading update, management provided an FY23 guidance update, with the full set of results due on 27 June. Accoya sales volumes in FY23 were up 6% to 63,344m³ (vs our estimate of 60,000m³). This reflects 64% growth in H2 to 39,387m³, clearly better than company guidance of +50%. In H1, volumes were affected by plant shutdowns related to delays in the construction of the fourth reactor (volumes down 19% y-o-y). Since the start of production at the fourth reactor in September 2022, the first three reactors returned to full production (capacity of up to 60,000m³) and the fourth has been ramping up (capacity of up to 20,000m³). Some unwinding of higher inventory (work in progress) levels also contributed to volumes in H2. Accsys now expects FY23 EBITDA to be ‘moderately ahead’ of its previous guidance of a doubling of last year’s underlying EBITDA of €10.4m (vs our prior estimate of €19.2m). Net debt was €44m (below our estimated €52m), €8m lower than at end December 2022, mainly due to lower inventories and higher EBITDA.

Update on strategic projects

Construction of the Accoya plant in the US is making good progress but mechanical completion has faced some delays and cost inflation and, as a result, commercial operations are now expected to start mid-2024, a delay of four to five months (we already anticipated mid-2024). There is no update on the Tricoya project in Hull, which is still on hold. Accsys is considering all commercial factors to decide whether to proceed with the project. We have taken our Hull estimates out of our FY25 estimates, but still assume that the Hull project will be continued sometime in FY24.

Unchanged valuation, including option value for Hull

We have raised our FY23 estimates due to the faster ramp up in Arnhem but have left FY24 broadly unchanged as Arnhem will near full capacity. Accsys is trading on EV/sales of 1.3x and EV/EBITDA of 9.8x in FY23e. Our DCF model is now based on estimates for Arnhem only and we add a separate value for the Accoya US joint venture, pointing at a value per share of around €0.95. The option value for Hull adds >€0.20 per share, bringing the group value per share to €1.15 (unchanged).

FY23 estimates raised

We have raised our FY23 estimates after the better-than-expected Q4 volumes and the increased EBITDA guidance (see Exhibit 1). We have increased our FY23 revenue forecast by 4% to incorporate the faster than expected ramp up of the fourth reactor in Arnhem and have left our price level assumptions unchanged. We have increased our EBITDA forecast by 13% from €19.2m to €21.7m, to bring it in line with the updated company guidance. We have left our FY24 revenue and EBITDA estimates broadly unchanged as the fourth reactor in Arnhem will near its full capacity. As the Hull project is still on hold, we have taken our estimates for Hull out of our model from FY25 for the time being, awaiting further announcements. That is the reason for the downward adjustments for FY25 shown in Exhibit 1.

Our new estimates reflect revenue growth of 32% in FY23, 15% in FY24 and 5% in FY25, fuelled by underlying strong market demand, additional capacity and pricing. Scale benefits and pricing will drive the underlying EBITDA margin towards 17% in FY25.

Exhibit 1: Change in P&L estimates

€m

FY23e

FY24e

FY25e

Old

New

Change

Old

New

Change

Old

New

Change

Sales

153.3

159.8

4.2%

185.7

184.4

-0.7%

228.6

192.6

-15.8%

Gross margin

31.1%

31.2%

31.2%

31.6%

31.3%

31.6%

EBITDA normalised

19.2

21.7

13.3%

27.7

26.7

-3.7%

36.6

32.8

-10.3%

EBITDA margin

12.5%

13.6%

14.9%

14.5%

16.0%

17.0%

Net profit (reported)

-18.7

-16.1

-13.7%

13.3

12.4

-6.9%

20.5

18.3

-10.8%

Net profit (normalised)

7.6

10.2

33.3%

13.3

12.4

-6.9%

20.5

18.3

-10.8%

Source: Edison Investment Research

Following recent appointments, Accsys’s management board is back at full strength: CEO Dr Jelena Arsic van Os will start on 1 July 2023 at the latest and CFO Steven Salo started on 1 April.

According to Accsys, demand for Accoya and Tricoya is still strong and the company’s focus remains on expanding capacity. The fourth reactor in Arnhem will increase local production capacity to up to 80,000m³, with estimated potential revenues of €195m by CY24. The Accoya plant in the US is now expected to be operational by mid-2024 (July/August) and can produce up to 43,000m³, with potential estimated revenues of €105m by CY27 (this 60%/40% joint venture is equity accounted). We assume the Tricoya project will be continued, although it is unlikely to be operational before mid-2024 (production capacity will be up to 40,000m³).

Higher valuation on increased estimates

For the valuation of Accsys, we use a discounted cash flow (DCF) model as there are no other listed companies with a similar business profile. The company is trading at 1.3x EV/sales and 9.8x EV/EBITDA in FY23e.

Our model now only includes the estimates for the four reactors in Arnhem as we have taken our Hull estimates out for the timing being, awaiting further announcements. We add a separate value for the Accoya plant in the US, which we still expect to be operational in mid-2024 following the start of construction in April 2022. We had already anticipated some delays thus we make no changes to our assumptions for the Accoya plant in the US, as we also assume that the joint venture partners have built in some room for higher costs (such as the announced cost inflation).

Our DCF for the four reactors in Arnhem and the Accoya US JV indicates a value per share of around €0.95 (with an unchanged WACC of 10%). The option value for the Hull project adds >€0.20, totalling an (unchanged) group value of €1.15.

Exhibit 2: 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

159.8

184.4

192.6

Gross Profit

33.1

36.0

49.9

58.3

60.9

EBITDA normalised

10.1

10.4

21.7

26.7

32.8

EBITDA reported

10.2

10.3

21.7

26.7

32.8

Depreciation & Amortisation

(5.7)

(6.2)

(7.8)

(8.6)

(7.6)

EBIT normalised

4.4

4.2

13.9

18.1

25.2

Exceptionals (Edison definition)

0.1

(0.1)

(58.5)

0.0

0.0

EBIT reported

4.5

4.1

(-44.5)

18.1

25.2

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

(44.8)

14.6

21.2

Reported tax

(1.3)

(1.0)

(0.6)

(1.5)

(2.1)

Profit After Tax

(0.9)

0.7

(45.5)

13.2

19.1

Minority interests

1.4

1.6

30.2

0.0

0.0

Net profit (normalised)

1.3

2.1

10.2

12.4

18.3

Net profit (reported)

0.3

2.4

(16.1)

12.4

18.3

Average number of shares (m)

164.9

178.9

211.9

219.4

219.4

Average number of shares, diluted (m)

173.3

185.9

218.9

226.4

226.4

EPS normalised (€)

0.01

0.01

0.05

0.06

0.08

EPS normalised diluted (€)

0.00

0.01

0.05

0.05

0.08

EPS reported (€)

0.00

0.01

(0.08)

0.06

0.08

DPS (€)

0.00

0.00

0.00

0.00

0.02

Revenue growth

9.8%

21.1%

32.2%

15.4%

4.5%

Gross Margin

33.2%

29.8%

31.2%

31.6%

31.6%

Normalised EBITDA margin

10.1%

8.6%

13.6%

14.5%

17.0%

Normalised operating margin

4.4%

3.5%

8.7%

9.8%

13.1%

Reported EBIT margin

4.5%

3.4%

-27.9%

9.8%

13.1%

BALANCE SHEET

Fixed Assets

155.6

195.3

189.4

222.4

219.9

Intangible Assets

10.9

10.8

6.8

6.6

6.4

Tangible Assets

144.4

181.3

151.4

184.6

182.4

Investments & other

0.3

3.2

31.2

31.2

31.2

Current Assets

72.5

79.8

78.7

92.4

119.3

Stocks

12.3

20.4

25.8

29.8

31.1

Debtors

9.8

13.2

13.1

13.6

14.2

Other current assets

2.8

4.2

4.2

4.7

4.8

Cash & cash equivalents

47.6

42.1

35.6

44.3

69.3

Current Liabilities

42.3

45.7

52.7

57.2

58.2

Creditors

9.5

16.7

17.6

19.9

20.4

Other current liabilities

22.2

16.4

17.4

19.6

20.1

Short term borrowings

10.6

12.7

17.7

17.7

17.7

Long Term Liabilities

49.2

56.5

61.5

66.5

66.5

Long term borrowings

49.2

56.5

61.5

66.5

66.5

Other long-term liabilities

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

136.6

172.9

153.9

191.1

214.6

Minority interests

37.2

35.5

5.5

5.5

5.5

Balance sheet total

228.1

275.1

268.1

314.8

339.3

CASH FLOW

Op Cash Flow before WC and tax

10.2

10.3

18.2

26.7

32.8

Working capital

8.3

(9.2)

(3.4)

(0.4)

(1.1)

Exceptional & other

(1.9)

(1.5)

3.5

4.0

4.5

Tax

0.1

0.1

(0.6)

(1.5)

(2.1)

Net interest

3.4

2.9

(3.0)

(3.5)

(4.0)

Net operating cash flow

20.1

2.6

14.7

25.3

30.1

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)

(16.4)

3.7

24.9

Opening net debt/(cash), including lease

24.3

12.2

27.2

43.6

39.9

Closing net debt/(cash), including lease

12.2

27.2

43.6

39.9

14.9

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.

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.

Copyright: Copyright 2023 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.

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

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.

Copyright: Copyright 2023 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.

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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