Interactive Investor

Accsys Technologies makes first profit in years

30th November 2015 14:12

Lee Wild from interactive investor

A conference of world leaders in Paris could agree a deal on climate change at some point over the next two weeks, but Accsys Technologies is already doing its bit. The AIM-listed company has developed a process of modifying softwood - mainly fast-growing southern hemisphere pine - called acetylation.

The resulting super-resilient Accoya wood has already been used on a number of high-profile buildings, and a new deal with Belgian chemicals giant Solvay is significant.

We covered the full-year results in June when Accsys lost money despite reporting a large rise in revenue. Run by Paul Clegg, former banker and brother of ex-Liberal Democrat leader Nick, the company actually made a cash profit in the six months to 30 September, the first since a major restructuring in late 2010.

Volumes, at 16,821 cubic metres (m3), were flat - but a 21% surge in half-year revenue to €26.3 million (£18.5 million) was driven by another increase in prices and further cost-cutting. It's why Accsys turned a €1.9 million loss a year ago into a €1.3 million profit this time. Gross manufacturing profit margin increased from 23% to 30%, with manufacturing profit up 62% to €5 million.

And, importantly, the new improved deal with Solvay, announced last week, is expected to double capacity at the Arnhem plant to 80,000m3 per annum, with the first phase - about 20,000m3 - expected to come on-stream in mid-2017. The Belgians have agreed to buy a minimum of 76,000m3 from Solvay over next five years.

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In response, house broker Numis Securities has increased profit forecasts out to 2018. Analyst Christen Hjorth now pencils in a €0.9 million pre-tax loss in the 12 months to March 2016 versus a €5 million deficit a year earlier. The deficit narrows to €0.1 million in 2017 before Accsys turns a predicted €3.5 million profit the year after.

"Looking past our forecast period, we expect continued growth in profitability as the second phase of the Arnhem expansion comes on-stream and the group benefits from further developments in regards to the Tricoya consortium," he says. Tricoya is "super MDF", to which Accsys owns the rights.

Accsys is clearly doing all it can to achieve sustainable profitability, and the future for both it and the product look promising. It finished the period with €7.5 million of net cash, too.

The firm will, however, need to spend heavily on future capacity increases, and some investors will likely wait to see the Solvay deal in action.

Understandably, Numis is optimistic. "We continue to believe that Accsys is well placed to develop the market for its unique products and therefore crystallise substantial value for shareholders," writes Hjorth, repeating his 'buy' rating and 117p price target. 

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.