Higher estimates on better trading and costs savings
In September 2023 Accsys Technologies (LON:ACCS) had warned that the markets were weaker which has resulted in a volume decline of 30% yoy in H224 (to March 2024) after an increase of 20% y-o-y in H124. The full-year volume decline of 11% y-o-y was nevertheless better than management had expected, due to resilient trading in Q4 and the first effects of its investments in sales and marketing. Cost saving measures are also on track, with the first effects from Q424. As a result, management now expects adjusted group EBITDA to be higher than consensus of €2.5m. Net debt declined €11m to €37m versus the end of September 2023, mainly due to the capital raise of €34m in November (of which €24m was new money) but also a significant decline in inventories of €9m in the three months to March 2024. We have raised our estimates after the better-than-expected results for FY24, and our adjusted group EBITDA estimate is now €4.0m (vs €2.5m previously).
Accoya USA on track and Hull decision due in H125
Accsys stated that Accoya USA (a 60%–40% joint venture with Eastman Chemicals) has begun commissioning and the plant is still on track to be operational mid-2024 (July/August). This plant will have an initial capacity of 43,000m3, which we estimate will generate revenues of €105m at full capacity. The construction of the Tricoya plant in Hull has been on hold since November 2022 and Accsys recently hired a financial adviser to assist in the search for a strategic and/or financial partner. Management will make an investment decision in H125. While our estimates do not take the Tricoya plant into account, we still believe that the project will go ahead, although it will most likely not be operational before H226.
Valuation higher on raised estimates
We base our DCF model on estimates for the Arnhem plant and include a value for the Accoya USA joint venture. On higher estimates, this DCF points to a value per share of €0.89 (was €0.79). The option value for Hull adds €0.07 per share (unchanged), bringing Accsys’s valuation per share to €0.96 (previously €0.86).
Better than expected EBITDA in FY24
Last September, Accsys warned of weaker market conditions, which resulted in lower demand for its products in the second half of its financial year (ending 31 March 2024). After good volume growth of 20% in H124, volumes dropped 30% in the second half. Volumes in FY24 were 11% lower at 56,658m3, with management commenting that trading was resilient in Q424. The company has increased investments in sales and marketing and it also added new distribution channels, which will show their full positive impact in the next financial year.
With better-than-expected trading in the fourth quarter and initiated cost-saving measures delivering more than €3m in savings on a run-rate basis, Accsys now expects the FY24 adjusted group EBITDA to be higher than consensus of €2.5m. We believe this suggests that adjusted group EBITDA in the second half was at least equal to the reported €1.6m in H124, despite weaker market conditions.
Net debt in FY24 declined €11m to €37m compared to €48m in H124, because of the new funding in November 2023 of €24m and strict working capital management, with €9m of inventory reduction realised in the three months to 31 March 2024.
On 16 May 2024, Accsys announced that its CFO, Steven Salo, would step down with immediate effect. Hans Pauli will be interim CFO until a new CFO has been found. He is currently director of corporate development of Accsys and has been with the company for 14 years, including three years as CFO.
US plant on track; decision on Hull expected in H125
For the existing plants in Arnhem, the Netherlands, (capacity up to 80,000m3) and Barry, Wales, (Accoya Colour), the focus is on further improving efficiency. In Arnhem, there is ample room for growth given the sales volume of 56,658m3 in FY24. On top of that, the start of operation of the Accoya plant in the US will free up expected volumes of 10,000m3 over the period in which the new plant will be ramping up.
At the time of the H124 results in November 2023, Accsys stated that the construction of the Accoya USA plant was on track, with construction c 78% complete and equipment setup c 87% complete. The company has now commented that it has begun commissioning on its newly constructed plant, which is still on schedule to be operational by mid-2024. The plant will have an initial capacity of 43,000m3, which we estimate will generate revenues of €105m at full capacity. Accsys operates in the US via the 60%/40% joint venture, which 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 the joint venture.
The Tricoya project in Hull has been on hold since November 2022 and management previously stated it would undertake a review of the viability, strategic interest and financial capabilities of this project in early CY24. Management now states that it is committed to coming to a resolution with respect to the future of its Tricoya plant in Hull in H125, which is in the April to September 2024 period. The company has hired a financial advisor to help with the search for a strategic and/or financial partner. The Hull plant was planned to have an initial capacity of up to 40,000m3, which we estimate would deliver revenues of €50m at full capacity. While our model and financial projections do not include contributions from the Tricoya plant, we still believe that the project will continue, although it will most likely not be operational before H226. Until the final decision, operational running costs are estimated at €1.5m per quarter, while we expect an additional capex of around €35m is needed to complete the plant.
Raising EBITDA estimates
Following Accsys’s positive trading update of better-than-expected trading in Q424 and the adjusted group EBITDA being ahead of consensus of €2.5m, we have raised our EBITDA estimates. We keep our revenue forecast broadly stable for FY24 as we expect that pricing will have been better than expected (+2% versus previously 0% after +5% in H124), while our volumes estimate of 57,363m3 appears to be too optimistic. For FY25 and FY26 we raise our revenue forecast by 2% after the better-than-expected trading in Q424.
We now expect FY24 adjusted group EBITDA of €4m, up from €2.5m previously, and consequently also slightly raise our FY25 and FY26 forecasts to incorporate the full effect of cost savings and slightly higher revenue levels.
Our updated estimates assume a revenue decline of 12% y-o-y in FY24 followed by 1% growth in FY25 (previously -1%) as we expect markets to gradually improve. For FY26, we expect stronger growth of 9%, driven by better market conditions and the full effects of the company’s investments in sales and marketing. EBITDA margins are expected to increase steadily from FY25 as Arnhem scales up and assuming market conditions return to normal.
Valuation
We use a DCF model for the valuation of Accsys, as there are no other listed companies with a comparable business profile. We base our DCF model 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 now that commissioning has begun. On our higher estimates, our DCF indicates a value per share of €0.89 (€0.79 previously). The option value for Hull adds €0.07 per share (unchanged), bringing Accsys’s valuation per share to €0.96 (previously €0.86).
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