Accrol Group Holdings plc (LON:ACRL) is the topic of conversation when DirectorsTalk Interviews caught up with Tom Fraine, Equity Research Analyst – Industrials at Shore Capital. We asked:
- What were the highlights of Accrol’s H1 update?
The news on margins returning to pre-pandemic levels quicker than anticipated was the key highlight. We were very pleased to put through a second upgrade to EBITDA in as many months. This is a clear indication to us that expectations are being managed conservatively and reflects management’s well-executed plan to invest in automated production, which has helped the Company become the lowest cost player in the UK market.
- How do you the view the outlook for Accrol as a result of their transformational automation programme?
We anticipate strong cash generation and forecast >£13m free cash flow for FY24F, implying a 13% FCF yield, following the completion of the programme. Capex is set to more than halve in FY24F and should remain low in the medium term, as the Group has 20% excess production capacity to support continued volume growth. Stabilising input costs and market conditions, discount grocers’ market share gains and growth in private label sales are all clear tailwinds for earnings. The prospect of vertical integration from a highly accretive, self-funded investment in a paper mill is likely, in our view, to drive a further material increase in the Group’s margins after becoming operational, expected in mid FY25F.
- How do you see Accrol in terms of fair value?
Our 50p DCF-based fair value indicates close to 60% upside. The free cash flow yield is very attractive, in our view.
Accrol Group Holdings is the UK’s leading independent tissue converter, producing toilet tissue, kitchen towels, facial tissue and biodegradable wet wipes.
