Accsys Technologies — Updating estimates for guidance and capital raise

Accsys Technologies (AIM: AXS)

Last close As at 27/02/2024

GBP0.55

0.90 (1.66%)

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GBP130m

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Research: Industrials

Accsys Technologies — Updating estimates for guidance and capital raise

In September 2023, Accsys warned of weaker market conditions in the building materials and construction markets and in November, it stated not to expect trading conditions to improve materially until mid-CY24. For FY24–25, we have lowered our revenue estimates by 8–18% and EBITDA by 68–79%. The construction of the Accoya plant in the US is on schedule for operation by mid-CY24 and management will undertake a review of the viability of the Tricoya project in the UK in early CY24. Accsys raised €24m of new capital, largely for the completion of the plant in the US. On lower estimates, our discounted cash flow (DCF) points at a value per share of €0.86 (previously €0.93).

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Accsys-Technologies_resized

Industrials

Accsys Technologies

Updating estimates for guidance and capital raise

Updating estimates

General industries

22 January 2024

Price

60p/€0.72

Market cap

£145m/€171m

€1.17/£

Net debt (€m) at 30 September 2023

48

Shares in issue

239.3m

Free float

60%

Code

AXS

Primary exchange

LSE

Secondary exchange

Euronext Amsterdam

Share price performance

%

1m

3m

12m

Abs

(0.7)

(9.9)

(22.6)

Rel (local)

1.7

(10.7)

(19.6)

52-week high/low

107p

60p

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 September 2023, Accsys warned of weaker market conditions in the building materials and construction markets and in November, it stated not to expect trading conditions to improve materially until mid-CY24. For FY24–25, we have lowered our revenue estimates by 8–18% and EBITDA by 68–79%. The construction of the Accoya plant in the US is on schedule for operation by mid-CY24 and management will undertake a review of the viability of the Tricoya project in the UK in early CY24. Accsys raised €24m of new capital, largely for the completion of the plant in the US. On lower estimates, our discounted cash flow (DCF) points at a value per share of €0.86 (previously €0.93).

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

141.9

2.5

(11.3)

(0.05)

1.2

36.9

03/25e

141.0

6.7

(9.8)

(0.04)

1.3

24.6

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 estimates due to subdued market outlook

After a good start to the year, markets weakened towards the end of H124 (ending September 2023) and have not improved since. Revenues in H124 increased by 21% y-o-y to €71m, including 5% higher average sales prices. On lower gross margin, due to higher input costs, and higher opex, group EBITDA decreased 64% yoy to €1.6m, with underlying results of the Arnhem plant broadly stable. We have lowered our FY24–25 revenue forecasts by 8–18% and our EBITDA forecasts by 68–79%, largely due to the subdued market outlook. From H225, we expect better results again, assuming market conditions return to normal. The construction of the Accoya plant in the US is on track (expected to be operational mid-2024) and Accsys will undertake a review in early CY24 of the viability, strategic interest and financial capabilities of the Tricoya project in the UK.

Capital raise finances completion of Accoya US plant

Net debt increased by €4m to €48m by the end of September 2023, mainly due to capex and higher working capital. In November 2023, Accsys raised €24m of new capital, with €13m in new shares and €11m in new convertible bonds. The proceeds will be largely used for the completion of the Accoya plant in the US, where total costs now are estimated at $160m compared to the initial amount of $130m (mostly due to construction cost inflation). Accsys is operating in the US via the 60%/40% joint venture with Eastman (equity accounted).

Valuation lower on lower estimates

We have lowered our estimates in line with management’s guidance of results being below market expectations at the time of the H124 results release. Our DCF model is based on estimates for the Arnhem plant and we add a separate value for the Accoya US joint venture, pointing at a value per share of €0.79 (was €0.85 on higher estimates). The option value for Hull adds €0.07 per share (was €0.08 on lower discount rate), bringing Accsys’s value per share to €0.86 (previously €0.93).

Strong revenue growth at lower margins

Accsys Technologies’ H124 results (March–September 2023) showed good revenue growth of 21% y-o-y to €71m. Average sales prices were 5% higher year-on-year, based on previously stated price increases. Accoya volumes increased 20% y-o-y to 28,807m³ with above-average growth of 30% in lower-priced Accoya for Tricoya production. The company stated it had a good start to the year but that markets weakened towards the end of H124.

Exhibit 1: H124 results (ending 30 September 2023)

€m

H123

H124

Change y-o-y

Revenues

58.9

71.2

21%

Accoya wood volumes, m3

23,957

28,807

20%

Gross margin total

30.8%

28.6%

Gross margin Accoya wood

30.8%

29.4%

EBITDA normalised (including US joint venture)

4.5

1.6

-64%

Net profit normalised

(0.9)

(5.4)

N/A

Source: Accsys Technologies

Group gross margin was 220bp lower at 28.6% due to higher average wood prices, which was partially compensated for by lower net acetyls costs. The Accoya wood gross margin was 140bp lower at 29.4%, where the company aims for a margin of at least 30%. Exhibit 2 shows the changes to EBITDA in H124. With also higher opex, EBITDA decreased by 64% y-o-y to €1.6m, including higher sales and marketing costs, higher pre-operational costs in the Accoya US plant (€0.7m) and higher ongoing running costs for the Tricoya UK plant, which is still on hold (€2m). Without the higher costs of the projects in the US and UK, underlying EBITDA would have declined 4% y-o-y.

Exhibit 2: Progression of EBITDA in H124 versus H123

Source: Accsys Technologies

Net debt in H124 increased by €4m to €48m (see Exhibit 3), as the operating cash flow was offset by capex, higher working capital and scheduled loan interest payments.

Exhibit 3: Net debt bridge in H124

Source: Accsys Technologies

Progress in new projects

The Arnhem plant is performing well as efficiency improves. The fourth reactor has been operational since September 2022 and Accsys has been able to grow volumes by 20% y-o-y in H124 due to the increased total Accoya wood capacity in Arnhem, which is up 33% to up to 80,000m³.

Accsys stated that the construction of the Accoya US plant is on track (scheduled to be operational by mid-2024) with construction c 78% complete and equipment setup c 87% complete. This plant will have an initial capacity of 43,000m³, which we estimate will generate revenues of €105m at full capacity. In previous press releases, Accsys had commented on the higher-than-expected costs for this project, partly because of construction cost inflation but also due to a more realistic build cost schedule. Following these press releases, we had incorporated the higher costs into our model and, therefore, we keep them unchanged for now. According to the company, the total costs for this project are now estimated at $160m, up from $130m previously. As Accsys operates in the US via the 60%/40% joint venture with Eastman, 60% of the cost overruns must be borne by Accsys, and for the financing of this the company has raised new capital. The joint venture 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 this joint venture.

The Tricoya project in Hull has been on hold since November 2022, but the company continues to believe in the attractive market and growth potential for Tricoya. Accsys stated that off-take partners Medite and Finsa remain committed and supportive, which has resulted in a volume increase of 30% y-o-y in Accoya wood for Tricoya production. In H124, the company recognised an impairment loss of €7.0m related to the Tricoya segment due to an increase in the discount rate used (due to higher market interest rates and the company specific market volatility factor). According to management, it will undertake a review of the viability, strategic interest and financial capabilities of this project in early CY24. The initial plans were for a capacity of 40,000m³, for which we estimate revenues of €50m at full capacity. In our model we do not take any potential Tricoya plant into account but still assume that the project will continue (at operational running costs of €6m for the time being), although it will most likely not be operational before FY26 (and additional capex of around €35m will be needed to complete the plant).

Capital raise and refinancing of debt

Management is committed to reshaping Accsys into a less complex business model with an increased focus on execution. Accsys successfully raised new capital with gross proceeds of €24.2m and extended its existing debt facilities. The company issued 19.1m new shares at €0.69 per share, delivering gross proceeds of €13.2m and increasing the total number of shares outstanding by 8.7%. Accsys raised €11m via new convertible loans and refinanced the existing €10m convertible bond of shareholder De Engh at the same conditions. The new convertibles have a six-year term, a fixed coupon of 9.5% and can be converted at €0.83 per share, which potentially increases the total number of shares outstanding by 14.5%. The interest on the loans in the first two and a half years will be rolled up and deferred, and the bond holders can then choose for (partial) conversion or cash payment. After the first two and a half years, interest shall be payable in cash.

The proceeds will be used to complete the US plant by mid-2024, strengthening Accsys’s balance sheet and increasing its working capital headroom (see Exhibit 4).

Exhibit 4: Usage of proceeds of capital raise

Approximate amounts in €m

US joint venture: completion of construction

15.5

US joint venture: supporting initial losses and ramp-up in operations

6.5

General working capital purposes

2.0

Total

24.0

US joint venture: completion of construction

US joint venture: supporting initial losses and ramp-up in operations

General working capital purposes

Total

Approximate amounts in €m

15.5

6.5

2.0

24.0

Source: Accsys Technologies

Accsys also extended its existing debt facilities with ABN AMRO in the form of a €40.5m term loan facility and a €25m revolving credit facility, for 18 months until 31 March 2026. The bank provided an amortisation holiday for future scheduled repayments so that there are no scheduled repayments of the term loan until 30 June 2025. The cash collateral currently provided by Accsys to ABN AMRO of €10m was released, with €2.5m being available for general liquidity purposes and the remaining €7.5m applied to repay the term loan facility. The term loan facility interest rate will vary between 4.34% and 5.34% and the revolving credit facility interest rate will vary between 3% and 4% above the relevant reference rate (details of loans). According to the company, this new debt package will increase its cash liquidity position by approximately €7.2m over the next 12 months and then provide extended liquidity for the following 18 months.

Lower estimates on subdued guidance

In Accsys’s September 2023 trading update, the company warned that demand for its products softened in some of its markets towards the end of H124, reflecting challenging trading conditions in the building materials, construction and residential housing markets globally. In reaction to the lower demand, actions are being taken to deliver annual cost savings of more than €3m, while also optimising working capital. Management does not expect trading conditions to improve materially until mid-CY24 and it believes that its FY24 results will be below the previous market expectations. For Accsys, the second half of its financial year is traditionally stronger than H1, due to increased sales in anticipation of the peak construction season. Management, therefore, expects that there will be an improvement in product demand in Q4 FY24, helped by the unwinding of the recent distributor destocking.

We have lowered our estimates for both FY24 and FY25, largely due to the current challenging market conditions. We have lowered our revenue estimate for FY24 by 8% and for FY25 by 18% to incorporate prolonged weaker markets. Also, as soon as the Accoya plant in the US is operational, the current US customers will be gradually transferred from Arnhem to the US plant, freeing up more than 10,000m³ in capacity in Arnhem. Given the weaker market conditions, it might take longer than previously anticipated to fill this capacity again.

We have also lowered our EBITDA estimates by 68–79% for FY24–25 following the large drop of 64% in H124 and the weaker-than-previously-anticipated revenue trends.

Exhibit 5: Change in P&L estimates

€m

FY23

FY24e

FY25e

FY26e

Actual

Old

New

Change

Old

New

Change

New

Sales

162.0

154.0

141.9

-7.8%

170.8

141.0

-17.5%

153.7

Gross margin

34.0%

29.3%

29.3%

30.6%

29.0%

30.4%

EBITDA normalised*

22.9

11.8

2.5

-79.0%

21.1

6.7

-68.1%

12.4

EBITDA margin

14.6%

8.9%

3.3%

12.3%

5.1%

7.6%

Net profit (reported)

(39.0)

(3.0)

(19.2)

N/A

5.4

(9.8)

N/A

(0.5)

Net profit (normalised)

9.5

(3.0)

(11.3)

N/a

5.4

(9.8)

N/A

(0.5)

Source: Edison Investment Research. *EBITDA normalised for amortisation and exceptional items and including 60% share in Accoya US joint venture.

Our updated estimates assume a revenue decline of 12% y-o-y in FY24 and a decline of 1% in FY25. We introduce our FY26 estimates, which assume 9% revenue growth, based on improving market conditions. EBITDA margins are expected to increase steadily from FY25 as Arnhem scales up and assuming market conditions return to normal.

Valuation

For the valuation of Accsys we use a DCF model as there are no other listed companies with a comparable business profile. Our DCF 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 in mid-2024 after construction started in April 2022. Our DCF indicates a value per share of €0.79 (€0.85 previously). The option value for Hull adds €0.07 per share (was €0.08 on lower discount rate), bringing Accsys’s value per share to €0.86 (previously €0.93).


Exhibit 6: 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

141.9

141.0

153.7

Gross Profit

36.0

55.2

41.6

40.9

46.4

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

10.4

22.9

2.5

6.7

12.4

EBITDA underlying, excl share Accoya USA jv

10.6

23.6

4.7

7.2

11.7

EBITDA reported

10.3

22.1

3.5

7.2

11.7

Depreciation & Amortisation

(6.2)

(8.3)

(9.5)

(9.5)

(9.1)

EBIT normalised

4.2

15.3

(4.8)

(2.3)

2.6

Exceptionals (Edison definition)

(0.1)

(87.5)

(8.2)

0.0

0.0

EBIT reported

4.1

(-72.2)

(-13.0)

(-2.3)

2.6

Net Interest

(2.3)

6.1

(4.4)

(5.4)

(5.2)

Results of associates/Accoya USA jv

0.0

(1.0)

(3.5)

(2.9)

1.8

Profit Before Tax

1.8

(66.0)

(17.4)

(7.7)

(2.6)

Reported tax

(1.0)

(2.8)

1.7

0.8

0.3

Profit After Tax

0.7

(68.8)

(15.7)

(6.9)

(2.4)

Minority interests

1.6

30.8

0.0

0.0

0.0

Net profit (normalised)

1.9

9.5

(11.3)

(9.8)

(0.5)

Net profit (reported)

2.4

(39.0)

(19.2)

(9.8)

(0.5)

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

(0.05)

(0.04)

(0.00)

EPS normalised diluted (€)

0.01

0.04

(0.05)

(0.04)

(0.00)

EPS reported (€)

0.01

(0.19)

(0.08)

(0.04)

(0.00)

DPS (€)

0.00

0.00

0.00

0.00

0.00

Revenue growth

21.1%

34.1%

-12.4%

-0.7%

9.1%

Gross Margin

29.8%

34.0%

29.3%

29.0%

30.2%

Normalised EBITDA Margin

8.8%

14.6%

3.3%

5.1%

7.6%

Normalised Operating Margin

3.5%

9.4%

-3.4%

-1.6%

1.7%

Reported EBIT margin

3.4%

-44.5%

-9.2%

-1.6%

1.7%

BALANCE SHEET

Fixed Assets

195.3

151.4

157.4

156.3

152.8

Intangible Assets

10.8

10.5

10.1

9.8

9.5

Tangible Assets

181.3

110.1

99.4

94.7

90.5

Investments & other

3.2

30.9

47.9

51.9

52.9

Current Assets

79.8

75.1

67.2

60.5

64.4

Stocks

20.4

29.9

28.6

29.2

31.9

Debtors

13.2

14.4

13.2

13.8

15.1

Other current assets

4.2

4.1

3.8

4.0

4.3

Cash & cash equivalents

42.1

26.6

21.6

13.5

13.1

Current Liabilities

45.7

42.5

38.2

36.0

37.3

Creditors

16.7

17.9

15.6

14.3

15.2

Other current liabilities

16.4

14.0

12.2

11.2

11.6

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

119.8

114.4

113.4

Minority interests

35.5

0.0

0.0

0.0

0.0

Balance sheet total

275.1

226.5

224.6

216.9

217.2

CASH FLOW

Op Cash Flow before WC and tax

7.3

28.2

3.5

7.2

11.7

Working capital

(9.2)

(6.1)

(1.4)

(3.6)

(3.0)

Exceptional & other

1.4

0.6

0.4

0.4

0.4

Tax

0.1

0.1

1.7

0.8

0.3

Net interest

2.9

(6.1)

(3.7)

(4.3)

(4.2)

Net operating cash flow

2.5

16.6

0.5

0.4

5.2

Capex

(45.3)

(30.2)

(5.5)

(4.5)

(4.6)

Investments in financial assets/joint ventures

(3.8)

(29.0)

(17.0)

(4.0)

(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)

(10.0)

(8.1)

(0.4)

Opening net debt/(cash), including lease liabilities

12.2

27.3

44.2

54.2

62.3

Closing net debt/(cash), including lease liabilities

27.3

44.2

54.2

62.3

62.7

Source: Accsys Technologies, Edison Investment Research

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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.

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General disclaimer and copyright

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United Kingdom

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