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Accrol Group “has successfully returned to its pre-IPO foundation” says Zeus Capital

Accrol Group Holdings plc (LON:ACRL) has announced audited Final Results for the year ended 30 April 2020, which show strong progress on a YOY basis and are ahead of our headline forecasts. An impressive recovery has now been delivered. Management has clear ambitions to build on this established platform and transform the Group into a larger household and personal hygiene products business with any expansion plans having “a clear focus on earnings enhancement and the continued improvement of shareholder value”. Despite the strong share price performance to date, we believe there is more to come from both the core business and potential EPS enhancing M&A activity.

  • Final results: Core revenue was +14.5% YOY, which compares to sector growth measured by IRI Data of 7.7%. This reflects strong market share gains increasing by 6.5% to 13.1% at the end of April. Gross profits also continued to strongly accelerate driven by the expansion into higher quality and value products, with gross margin increasing by 49% to 22.7% YOY. Administration costs have fallen by 43% in two years equating to a reduction of £14.4m, which also helped pre IFRS 16 EBITDA coming in slightly ahead of our forecast expectations (£8.3m vs. ZC £8.0m).
  • Outlook: The tone of the outlook statement is positive and supportive of further progress being made during FY21. Indeed, management are currently comfortable with current market expectations. Volumes across the private label sector have come off during Q1 2021 as panic buying unwound, albeit margins have increased ahead of expectations as product mix continues to improve. With only 13% of the total tissue market and strong infrastructure to support growth, we believe Accrol is well positioned to deliver further growth in shareholder value in a post COVID-19 world. We anticipate a strategic shift into new markets over the months ahead.
  • Forecasts: We are maintaining our underlying assumptions but adjust our forecasts to take account of the IFRS 16 changes, which has been applied across the board. We also introduce our 2023E forecasts assuming modest revenue growth with continued margin expansion at both a gross profit and EBITDA level as the business benefits from increasing scale.
  • Investment view:We believe Accrol Group has successfully returned to its pre-IPO foundation, and can see further improvements being made from here as it becomes a stronger and more efficient business. We remain comfortable with our previous intrinsic value analysis and see scope for sales to reach £250m driven by ongoing organic growth and earnings enhancing M&A which could deliver EBITDA of up to £30m by FY24E.

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