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Accrol Group Holdings plc

Accrol Group Holdings PLC Update – Zeus Capital

Accrol Group Holdings PLC (LON:ACRL) has announced it has had constructive discussions with its lender, and continues to make progress in restructuring the Group. Operationally, the new management team has made progress in simplifying the business model and the restructuring remains on schedule. We are maintaining our forecasts at this juncture, but believe management continue to make good progress in what remains a difficult trading environment. We will review our trading assumptions in full detail on full year results in July 2018.

Banking arrangements: The Group has announced it has had constructive discussions with its lender, which has resulted in a number of amendments to its facilities. These include EBITDA covenant tests being waived in April 2018 and July 2018, the amortisation of the RCF deferred until October 2018 and indicative terms being established for the lease funding for the new conversion line in Leyland, which will allow the business to support major new business wins going forward.

Operational update: Operationally, management improvements continue to be made, importantly, heads of terms on the exit from the distribution hub in Skelmersdale have been signed and are expected to have a positive impact on profits of at least £5m.

Forecasts: We are maintaining our forecasts at this juncture, and expect to get more clarity when it reports full year results in July 2018. We would expect to see signs of gross margin improvement coming through in 2019E following the trough of 2017 to support our assumptions.

Investment view: While cost pressures continue to persist, and remain a near term risk, we continue to believe there are early signs of a recovery building. We believe Accrol remains well positioned to benefit from the continued growth of discount retailers and has significant opportunity across the wider retail segment. In our view this continues to carry long term strategic value that should be unlocked as its recovery builds momentum from 2019E.