Accrol Group Holdings plc (LON:ACRL) has delivered a solid set of FY results, which were well flagged at the adjusted EBITDA level, but outperformed our adjusted EPS by 1.7%. We are maintaining our FY22 estimates, upgrading FY23 forecasts and introducing our FY24 numbers for the first time. We believe Accrol will emerge as a £45m+ EBITDA business with a self-funded papermill, and we believe the Group is well positioned to deliver strong growth in shareholder value from here.
- Final results: Group revenues were +1.4% at £136.6m, and reflected volatile sales volumes impacted by changing consumer shopping habits during the pandemic. This was flagged in the trading update in May, with H2 volumes strengthening due to the impact of acquisitions. Whilst the total tissue market contracted by 1.3% YOY, Accrol’s market share has increased from 13.1% to 15.9% during the period. Gross margin progression is a key positive in these results, with underlying gross margin (excluding exceptional costs) +590bps to 28.6%. The progress made in margins was driven by productivity gains, underpinned by new systems and operating processes. Adjusted PBT of £9.1m is +93.6% YOY and 7.1% ahead of ZC estimate (£8.5m). Net debt of £14.6m (ex IFRS 16 leases) is in line with ZC expectations (£14.7m) and is £3.3m lower YOY, despite the £3.9m cash acquisition of Jon Dale. Today’s announcement also confirms the restoration of the dividend.
- Outlook: Current trading for FY22 is in line with expectations, with an improving trend in sales MoM and YoY.Increased input costs, driven by pulp price inflation, are being mitigated through prompt pricing action. Significant investment is planned in wet wipes in FY22, which should drive material growth into FY23. Longer term growth is backed by an acceleration in discounters planned new store openings. Overall, and with a self-funded paper mill in the offering, we believe Accrol is in a strong position to deliver significant shareholder value.
- Forecasts: Our FY22E P&L forecasts are unchanged, with current trading in line with management expectations. FY22E net debt moves higher reflecting investment in working capital. FY23E revenue and PBT forecasts increase 2.2% and 3.2% respectively to reflect investment in automation and wet wipes which should drive growth beyond FY23E. FY24E numbers are introduced for the first time with EBITDA approaching £35m in line with our investment thesis.
- Investment view: At current levels, Accrol Group trades on an FY22E PE of 10.5x, falling to 9.0x in FY23E, a material discount to its quoted peers. A re-rating towards peer average of 18-20x FY22E P/E would imply 78.2p -86.9p, representing upside of 72% to 91% versus current levels. Intrinsically, we believe the Group can generate revenue of c.£250m, with the addition of a paper mill driving gross margins towards 33% and EBITDA margin towards 18%. On this basis the Group could deliver EBITDA in excess of £45.0m, driving significant uplift in shareholder value.
