Accsys Technologies — Updating estimates for FY22 results

Accsys’s FY22 results were broadly in line with the trading update released on 25 May 2022. Revenues increased 21% y-o-y to €121m, fully driven by higher prices. Accsys has raised its sales prices over the past year and this has offset the higher raw material costs, particularly for acetyls (due to the steep price increase in natural gas). Revenues from Accoya wood rose 15% to €105m (price driven) and revenues from the by-product acetic acid jumped 134% y-o-y to €13.6m (also price driven). The balance of the €120.9m group revenue came from Accoya licence revenue of €0.4m (FY21: 0.4m) and Tricoya sales of €1.5m (FY21: €2.1m).

Despite strong underlying demand, group volumes declined 1.4% y-o-y to 59,649m³, due to capacity restraints and a temporary plant stop in connection to the installation of the fourth reactor (as communicated on 25 May). Sales of wood to Medite and Finsa for the manufacture of Tricoya panels were down 19% y-o-y, representing 22% of total volumes (FY21: 26%), driven by an overall shift in the end-market mix at the Arnhem plant, which is at capacity. Volumes to Accoya customers increased 5% y-o-y with a strong increase in volumes to the US for market seeding of the new Accoya plant, which could be operational in mid-2024.

As expected, the gross margin declined 340bp y-o-y to 29.8%, mainly due to a threefold mix effect: (1) the first contribution of Accoya Colour, which is priced around 25% higher than traditional Accoya, (2) lower wood volumes to Medite and Finsa, which have lower prices compared to the wood for Accoya customers, and (3) lower tolling volumes (when customers supply their own wood instead of Accsys). Exhibit 2 shows the development in gross margin and also the steady increase in manufacturing gross profit per cubic metre, which recently has been largely price driven.

Underlying EBITDA increased 3% in FY22 to €10.4m, with higher sales prices offsetting the higher input costs (see Exhibit 3). Normalised net profit was higher compared to FY21, mainly driven by lower interest expenses (with the group overall debt refinance in H2 of FY22) and lower taxes.

Total investments increased from €13.4m in FY21 to €49.1m in FY22, of which the largest part was for the new projects, that is Arnhem (€24.7m), Hull (€18.4m) and the joint venture in the United States (€3.8m). As previously indicated on 25 May, net debt was up €15m to €27m, or €55m when adjusted for €28m of committed investments in Q123 for the Accoya joint venture in the United States. On 25 May 2022, Accsys raised new capital of €19m (net of costs), to cover cost overruns and the anticipated higher working capital for the increased capacity.

Demand for Accoya and Tricoya remains strong, according to management, but Accsys is still facing capacity restraints ahead of the planned capacity expansion later this year. On 30 June 2022 the company announced further delays in the expansion of its capacity. During commissioning of the fourth reactor in Arnhem in June, some defective equipment was identified, which required remedial repair work, delaying the finalisation of the project by about eight weeks until July–September. This will also result in €1m in additional costs, which might be recoverable according to management. Accsys still anticipates a two-year ramp-up for the fourth reactor, bringing full capacity in Arnhem to 80,000m³. The first Tricoya plant in Hull was planned to be operational in July/August, but in June construction challenges and rework of certain areas were identified, resulting in further delays, with the company now targeting completion in the coming months. This will result in additional costs of €4–7m, which are not recoverable according to management. On 25 May, the company stated that the Hull plant needed additional funding of €3m and these new cost overruns of €4–7m will also need funding and Accsys is currently in negotiation with its consortium partners. One of the options is that Accsys extends its current loan of €17m to Tricoya UK.

Accsys provided FY23 guidance on 30 June 2022. Revenue growth should accelerate from the second half driven by new capacity. Once the new projects in Arnhem and Hull are operational, capacity will have doubled to 120,000m³. Price increases in January and June should form a cushion for the input pressure, while Accsys has also introduced an energy price premium from May 2022 (to mitigate the effects of volatile gas prices, which affect the acetyl raw material costs). Given this stronger revenue growth, Accsys expects to nearly double its EBITDA in FY23 (versus €10.4m last year). On 25 May, Accsys commented that a total project capex investment of €57m will fall in FY23, being largely the finalisation of the fourth reactor in Arnhem (€8–9m), the finalisation of the Hull plant (€15m) and the investment commitment of €28m for the Accoya US joint venture, for which the capital was raised in May 2021. More than 90% of the planned capex is expected to fall in the first half.

We have lowered our expected revenues for FY23 and FY24 due to the delays in Arnhem and Hull, but still expect increases of 28% y-o-y and 23% y-o-y respectively, driven by the additional capacity and pricing. Gross margin should recover in FY23, driven by price increases and increased scale, with a further increase in FY24 due to mix effects, as Tricoya potentially carries a 40% gross margin versus the 30% for Accoya. For the same reasons, we have lowered our EBITDA forecasts but still expect a doubling of EBITDA in FY23, in line with company guidance. We expect further revenue growth and scale benefits will boost EBITDA to €33.4m in FY24, delivering a margin of almost 18%.

Management again stated that the strategy to expand its total capacity to 200,000m3 by 2025 is on track, which we summarise in Exhibit 5. We have moved up the timing of new capacity in the United States and Malaysia both by one quarter, anticipating small delays in both projects.

For the valuation of Accsys we use a discounted cash flow (DCF) model as there are no other listed companies with a business profile close to that of Accsys. Accsys is valued at EV/sales of 2.1x and EV/EBITDA of 16.5x in FY23e. We now include four reactors in the Arnhem plant and only one in Hull (we previously assumed two in Hull, but this is not part of the company’s stated strategy for 2025). We use a DCF for the valuation of a separate Accoya and Tricoya plant and add a value for the Accoya plant in the US, which is expected to be operational in mid-2024. We also add a value for the Tricoya plant in Malaysia (or an alternative location) with a probability rate of only 50% as that project has yet to be committed. The investment decision will be taken after the Tricoya plant in Hull has been operational for at least six months (now delayed until Q1/Q2 2023).

We have changed our DCF assumptions from those detailed in our update note of 15 June. We have lowered the terminal EBIT margin from 18% to 17% (as we now assume one reactor in Hull instead of two) and we prudently have added an allowance of €10m for the risk of cost overruns for the Accoya plant in the US, although the Engineering, Procurement and Construction contract has a fixed cap and capex items have been ordered early to lock in cost pricing. On these new assumptions, our DCF suggests a fair value of €1.83 per share (previously €1.95).