Accsys Technologies Plc (LON: AXS) – Expanding capacity to meet the high demand

Accsys Technologies PLC (LON: AXS) is an FTSE AIM All-Share listed chemical technology company. The Company focuses on developing and commercializing a range of transformational technologies based upon the acetylation of solid wood and wood elements. The Company has two main products, namely Accoya and Tricoya.  Accoya wood is used for windows, external doors, siding, decking, structural and civil engineering projects. Tricoya Wood Elements are used in Facade cladding/siding and other secondary exterior applications, window components, and door skins and wet interiors.

On 29 July 2021, AXS purchased certain assets, equipment, and technology at Lignia Wood Company Limited 50,000 square ft (4,650 square m) manufacturing plant in Barry, Wales, for consideration of EURO 1.2 million, including approximately EURO 0.5 million for raw wood inventory.

On 17 September 2021, the Company may release its trading update and conduct its Annual General Meeting.

Market Drivers for the Product

Growth Prospects

• Huge Market Opportunities: The Company operates within the global wood products industry, producing approximately 800 million cubic metres per annum. Its products compete with and displace other non-wood building materials from concrete to plastics, making the market in which the Company operates is even more significant. The Company plans to achieve the target of 1 million cubic metres for Accoya and 1.6 million cubic metres per annum of Tricoya panel products, which is marginal compared to the overall industry size.
• Competitive Advantage: The Company’s products offer not just ultra-high quality and performance but also market-leading warranties and service life, along with the sustainable benefits and credentials that provide the Company with a competitive advantage over competitors.
• Focused Market Penetration: The Company focuses on developing the regions and product applications to support rapid but sustainable growth. This includes targeting the product categories and use cases for which their products are particularly well-suited, offering the most substantial and easily understood advantages over other materials.
• Increasing Capacity to Meet the Demand: The Company currently faces a supply shortage due to high demand for its products. As a result, the Company follows a long-term strategy to increase its production capacity 5x by 2025. By increasing its production capacity, the Company will be targeting the development of and expansion into new regional markets and more application types.
  

Key Risks 

• Raw Material Risk: Any failure to secure the supply of raw materials in the right volumes, at the correct times, and at a reasonable price will hinder AXS’s ability to produce and sell products. This could result in a material impact on the operations and financial bottom line.
• Failure to Supply Products: A failure to supply pent-up demand could result in customers adopting alternative technologies and products, adversely impacting future demand and sales growth.
• Failure to Attract New Partners: A loss of demand for technology licences or interest in partnering for new or existing plants may adversely impact the Company's ability to realize value from IP and grow in line with its strategy.

 

Now we will analyze some key fundamental and shareholders statistics of Accsys Technologies Plc. 

Financial and Operational Highlights (for twelve months ending 31 March 2021 as of 22 June 2021)

(Source: LSE Website)

• Post the quick recovery from the Covid-19, the revenue of the Company was up by 10% on a YoY basis and volume increased by 4.5% during the period.
• Driven by high sales prices, the EBITDA was up by 44% to EURO 10.1 million and the Accoya manufacturing margin increased by 340bps to 33.4%.
• Due to the high demand for Accoya products, there was a 61% increase in Group Operating cash flow.
• The Company maintains a strong balance sheet with EURO 13.0 million reductions in Group Net Debt.
• The Company completed a capital raise of EURO 35 million during the year to build the new 40,000m Accoya plant in North America.
• The Company updated its operation guidance of the world's first Tricoya plant at Hull, likely to be completed in July 2022.

Financial Ratios (H2FY21)

 Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 07 September 2021, at 09:00 AM GMT, AXS’s shares were trading at GBX 156.50, up by around 1.29% from the previous day closing price. Stock 52-week High and Low were GBX 194.20 and GBX 84.92, respectively.

From a technical standpoint, AXS is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~42.85 is supporting an upside momentum in the stock price.

In the last year, AXS’s stock has delivered a solid return of ~71.72%. Also, it has outperformed the FTSE All-Share Industrial Materials Index with a return of about negative 95.13% and the FTSE AIM All-Share index with a return of about 37.17%.

Valuation Methodology: EV/Sales (NTM) (Illustrative)

Business Outlook Scenario

AXS delivered an excellent performance in FY21, with revenue growth of 10.00% against FY20. The Company's unique product portfolio not only help in expansion in the new market, but Company continuously focuses on the expansion in the new industry and segment. The Company has taken several actions to boost its production capacity and plans to increase its capacity by 5x by FY25. The Company's business model of providing multiple uses of its product continues to attract new customers and solidify their relationships with the existing customers. In addition, the new projects and manufacturing facility will increase their market share and improve margin. The management expects the momentum to continue in FY22 on the back of high demand and increased production.

Considering the Company’s market leadership position, unique products, operational plans, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Accsys Technologies PLC at the current price of GBX 156.50 (as on 07 September 2021 at 9:00 AM GMT), with lower-double digit upside potential based on 4.58x EV/NTM sales (approx.) on FY22E sales (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

*All forecasted figures and Peer information have been taken from Refinitiv.

*The reference data in this report has been partly sourced from Refinitiv.

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