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Accrol Group Holdings plc

Accrol Group Holdings PLC Heavy lifting complete – Zeus Capital

Accrol Group Holdings (LON: ACRL) has delivered FY results that are in line with our forecast at the adjusted EBITDA level, marking the end of a highly complex, well executed turnaround in an unhelpful FX environment. Net debt also continues to fall ahead of our forecasts, with encouraging signs of progress here. We are maintaining our headline forecasts in line with guidance, and see Accrol as a simpler, stronger and more operationally efficient business backed by a proven management team.

  • Final results: As stated in its pre closed update in June, the results are as expected at the headline level, with adjusted EBITDA bang in line with our forecast of £1.0m. Encouragingly net debt was lower (£27.1m vs. £29.6m forecast) than our forecasts and is expected to reduce further during the next 12 months. It is also important to put into context that these results were delivered despite input cost headwinds of £10.8m during the period, which is testament to management and how they have re-engineered this business during what has been a complex restructuring since 2017.
  • Progress delivered: The heavy lifting of the turnaround is now complete and has been very well executed in an unhelpful FX environment following further sterling pressure given Brexit uncertainty. The business is now more operationally efficient and fit for purpose, while the Accrol Group Holdings is beginning to secure more enhanced credit terms from its key suppliers. The Group is expected to remain innovative in winning new business, and capitalise from its low cost, high service “brand killer” approach to different products and markets. Looking further ahead, the Group is exploring opportunities to grow the business and de-risk its exposure to FX and tissue price volatility, which remains at the macro level.
  • Forecasts: Guidance remains unchanged from the Trading Update in June, and we are maintaining our forecasts as a result. Our 2020 net debt forecasts fall by 3.1% as we allow our assumptions to flow from the improved 2019 position vs. our forecasts. We also introduce our 2022E forecasts for the first time, which assumes marginal price increases with a more stable input cost environment resulting in £14.4m adj. EBITDA.

Investment view:  We believe the structural cost savings delivered to date will have a significant impact on the business going into FY 2020, with major restructuring actions now behind them. While challenges remain, we see potential for the Group to return to its pre-IPO foundation to build a more efficient and stronger business from here.  If we apply a P/E of 10x to what we our 2022E adj. EPS forecast, we arrive at an intrinsic value of 65p per share.