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Accrol Group Holdings plc

Accrol Group Holdings plc Preliminary results due 10th July

Zeus Capital today noted for Accrol Group Holdings plc (LON:ACRL): We anticipate a robust set of results on the 10th July and expect to see continued growth across the business. We note the recent announcement of a further €4.5m investment in a new tissue converting line, which in our view is evidence of the continued successful implementation of the strategy and growing demand for the company’s products. While the shares have performed well of late, we believe the valuation remains attractive given its growth potential and unique market positioning and believe the risk/reward profile remains positive from here.
Preliminary results: We anticipate a robust set of preliminary results on the 10th July, following on from an encouraging trading update in May which confirmed the company was trading in line with expectations, despite a “less favourable macro-economic environment”. We are forecasting revenues of £137.9m +16.7% YOY with EBITDA of £16.4m, +9.3% YOY. We expect reduced interest costs as a result of the new balance sheet structure post IPO to drive growth in adj. PBT of 63% YOY to £13.4m with adj. EPS of 11.5p for the full year. We forecast net debt at year end of £18.9m representing 1.1x EBITDA.

Key themes: The company continues to make good progress on an operational level, recently announcing further investment of €4.5m in a new tissue converting line which will add a further 15,000 tonnes of capacity per annum. This will increase total capacity to 158,000 tonnes per annum when it comes on line towards the end of FY18, which represent a 34% increase in total manufacturing capacity since IPO. While uncertainty remains across many parts of the economy, we are encouraged by data from Kantar confirming discount retailers have continued to capture market share from the multiples, with the combined market share of Aldi and Lidl growing from 10.6% to 12% over the past 12 months. We remain of the view that during a period of higher inflation, more consumers will move into the discount sector and private label products where Accrol is well positioned, and would expect the discounters to continue to successfully capture market share.

Forecast assumptions: We are forecasting a 4-year revenue CAGR through to 2019E of 10%, with cautious gross and EBITDA margins given the current environment. This will deliver a CAGR on the same basis in adjusted EPS of more than 20%, which is also backed by a rising ROCE (post tax) profile that should move in excess of 20% by 2019 vs. 15.4% expected in 2017E. We are also anticipating a 10% growth rate in DPS every year.

Valuation: Accrol Group Holdings plc shares are currently trading on a 2018E P/E of 12.0x and an EV/EBITDA of 8.7x, which we believe remains attractive for a business expected to deliver EPS growth >15% per annum through to 2019E with a rising post tax ROCE >15%. Given the continued investment in growth and capacity, we remain comfortable with our original thesis that this should be a £30m+ EBITDA business based on 200,000 tonnage capacity.

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