Accsys (Buy): Heading towards a cash flow positive position
The facts: Accsys reported 1H results for its book year ending March 2015. Accsys experienced another period of strong revenue growth.
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Our analysis: In September, Accsys already announced the revenue increase of 38%. Revenues from sales to Accoya customers rose about 39%, whilst sales of Accoya to Medite for the production of Tricoya continued with strong momentum (+68% to EUR 2.4m). There was no licence income (last year EUR 0.5m).
Gross margin in Manufacturing improved 370bps to 23%, due to higher revenues (economies of scale), price increases and process improvements. Total gross margin improved 100bps to 23%, as the increase in Manufacturing gross margin was offset by lower licence income. Operating costs rose only 12%, showing the operating leverage in manufacturing. Driven by strong volume growth, EBITDA of the Arnhem plant was up EUR 2.2m to EUR 3.1m. This increase was however offset by a 30% increase in costs to EUR 4.2m related to licensing/head office (marketing, business development and administration costs). Exceptionals amounted to EUR 3.1m, related to the Diamond Wood dispute, of which EUR 2.4m will be paid in Q3. In 1H, net cash declined from EUR 15.2m to EUR 12.0m.
Accsys remains focused on the licencing of its technology. Solvay is progressing to the next stage of the Accoya plant in Freiburg, which includes the completion of the Detailed Engineering and the physical clearing and preparation of the site. The next milestone is mid-2015 and completion is scheduled for 2016. The companies are also preparing for a three-year global licence option for Accoya, for which agreements will be signed in December 2014 and later in 2015.
Accsys's joint venture TTL is continuing its efforts in signing the first fully effective licence for Tricoya. The licence with Medite remains conditional upon approval from its board of directors, previously expected mid-2014. In May 2014, TTL extended the licence option for Latin America with Masisa (top 5 player in MDF globally). Conversations with other possible licensees are continuing.
Accsys expects continued growing demand for its products and further margin improvement, driven by economies of scale, further price increases and process improvement. Accsys aims to increase the production capacity in Arnhem. Estimated net cash of EUR 7-8m at the end of the book year is sufficient as we expect Accsys to start to generate positive cash flows in 2015.
Conclusion & Action: Accsys experienced another period of strong revenue growth and it aims to increase its production capacity in Arnhem. Solvay is progressing to the next stage of the Accoya plant in Freiburg, whilst joint venture TTL is continuing its efforts in signing the first fully effective licence for Tricoya. Our DCF includes the Solvay licence and attaches a 50% success rate to the Tricoya licence with Medite. This reflects a value of EUR 1.30 per share: Buy.