Accrol Group Holdings PLC Q&A with Zeus Capital (LON:ACRL)

Accrol Group Holdings plc

Accrol Group Holdings Plc (LON:ACRL) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview


Q1: Mike, Accrol Group Holdings provided their preliminary results today for the year-end 30th April, what are your thought on the results?

A1: The results overall are very good, excellent year-on-year growth so revenue was up 14% year-on-year, EBITDA was ahead 7% year-on-year as well, earnings per share was 65% up year-on-year, that was really down to the capital structure and the lower interest costs as the business became a publicly listed company post-IPO last year.

In terms of our forecast, they were within 2% of our revenue and EBITDA numbers with the earnings number nearly 8% ahead of our forecasts due to slightly lower tax. The net debt was very close to our forecast as well, it came in at £19 million against our forecast of £18.8 million. The dividend, importantly, was in line with our expectations and of that at the time of the IPO as well.



Q2: What were the key themes being noted here?

A2: I think from our side, the business has transitioned well to life as an AIM-listed company, I think they’ve certainly built a lot of capacity into their business and they are seeing a lot of demand for the discounting part of the sector which continues to grow very well.

I think from a pricing point of view, life has got a little more difficult after Brexit and I think price inflation from some of the major multiples has moved a bit more slowly than what we first anticipated. Having said that, we do think with underlying levels of inflation expected to continue to increase, we do expect those price rises to come in during the next 6-12 months.

We certainly think Accrol Group have a very attractive market position, both with the discounters but also hopefully increasingly with the multiples as they go down that route a bit more as well.



Q3: With that in mind then, has it affected your forecast in any way?

A3: Yes, we’ve been a little bit more conservative on our ‘18 and ‘19 forecasts so we’ve reduced our ’18 earnings forecast by about 4.5% and 6% on the 2019, the ’18 earnings downgrade is a result of a more prudent gross margins assumption. That’s really driven by what we’re seeing in current trading but also US dollar appreciation at the moment and that slower than expected rate of inflation from the major brands. 2019, we’ve just put a bit more costs investment into our forecasts as it continues to grow capacity.



Q4: What are your thoughts on Accrol Group Holdings’ stock as an investment at the moment?

A4: We still the valuation is attractive, we do expect it to deliver decent growth, I think based on this capacity target of 175,000-200,000 I think this could be a £30 million plus EBITDA business in the medium term. So, there is a lot of organic growth potential still to come in the business and the valuation is attractive on 2018 numbers of a PE of less than 12 times, the yield is still above 4% and this is a business that makes post-tax return on capital employed in excess of 15%. So, if you look around at some of the other smaller cap consumer stock at the moment, we think that’s attractive given its growth through cash generation, yield and return on capital.

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