Schedule slips dampen Accsys Technologies’ allure

Accsys (AXS) continues to have the happy problem of demand for its product far outstripping supply. The manufacturer of treated wood products grew sales by a fifth and managed to increase prices enough to largely offset higher timber and acetyl prices – the margin on manufacturing its Accoya solid wood dropped by 3 percentage points but remained robust at 30 per cent.

The problem has been in delivering growth, with the company suffering further delays to its plans to boost capacity. The opening of a fourth reactor at its sole operating site in Arnhem, which was due in April, has been pushed back to the third quarter as damage to some equipment was discovered during the installation process. Commissioning should take place “within about six weeks”, chief executive Rob Harris said.

More worrying is the Tricoya plant in Hull, which was initially due to complete in mid-2019 but has been hampered by a string of problems, including the withdrawal of its main contractor last year, with the company pledging to finish the work itself.

Harris could not confirm an opening date for the plant, saying only that it is “likely” to be operational by year-end.

The delays have affected investors, with the company tapping shareholders for a further €20mn in May (following a €37mn raise 12 months earlier) to plug funding gaps. It also needs to agree a deal with Tricoya consortium partners about covering a €4mn-€7mn cost overrun.

The company has been overhauling its project delivery capability, given that it currently has about €300mn of plants to be delivered that are not yet generating revenues, including a second Accoya site that has broken ground in the US through a joint venture with Eastman and a planned Tricoya site in Malaysia with Petronas, which will start once the Hull plant is established.

Harris argues that risks at Arnhem and Hull are reducing as they approach completion and, with the additional capacity coming on stream, its cash profit should “broadly” double from the €10.4mn generated last year.

The delays have clearly been a setback, with the discounted placing contributing towards a 35 per cent slide in the company’s share price since we featured them as a buy idea in December. However, we pointed out then that they were a high-risk, long-term play.

The strong demand for the company’s products should mean big operational gearing benefits once capacity steps up. Broker Investec forecasts a doubling of earnings per share this year to €1.80 and a near-quadrupling the year after to €6.90. We maintain our buy rating.

Last IC view: Buy, 168p, 9 Dec 2021