Accsys Technologies — Updating estimates for guidance and capital raise

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.

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.

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.

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).

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).

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.

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.

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.

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).