Accoya wood progress in FY20 to date continues to validate the business model and expansion undertaken last year. The new Tricoya project is also progressing albeit with commissioning slipping by some months into H2 calendar 2020. Our existing model accommodates these effects and we have made no changes save for adding FY22 estimates for the first time. For now, on our unchanged estimates, we continue to contend that the current valuation is underpinned by Accoya.
Companies: Accsys Technologies
FY19 performance at the Arnhem Accoya facility has been robust with successful delivery of higher volumes from raised capacity. Construction delays at the new Hull Tricoya facility outside Accsys’s control are a near-term frustration and dampen EBITDA progression over our forecast horizon. That said, achieving a positive group EBITDA outturn in FY19 is a significant milestone. The current valuation is underpinned by Arnhem.
Accsys continues to make positive progress and is now generating revenue from its latest investment at Arnhem. We expect the new, under-construction Tricoya facility to follow suit within the next year, at which point annual group revenue potential will be around €150m according to management. In the near term, we expect to see an EBITDA positive outturn in FY19.
AGM comments point to operational progress at Arnhem and an on-track construction schedule for the new Tricoya facility at Hull. Accsys has set out a clear development plan for the group; while we are not placing undue weight on a short trading period, we are encouraged to see that growing revenues and production volumes have been achieved in the year to date.
Building on Accsys's established international presence the current significant investment phase (€80m+ capex) should be the catalyst for accelerated business growth. We expect Accsys to move into a group EBITDA positive position from FY19 with the significant profit potential to be progressively delivered thereafter. Our DCF analysis suggests that the share price is solidly underpinned at current levels with upside from enhanced commercial development of proprietary technology.
Successful expansion of its established Accoya facility at Arnhem should pave the way for Accsys to become EBITDA positive at the group level during FY19. A dedicated Tricoya facility (construction underway, first production expected from mid-2019) provides another clear platform for further profit growth. As this becomes more apparent, we believe it will be a catalyst for positive share price performance.
Accsys has reported H1 FY2018 interim results, delivering 13% revenue growth to a capacity-constrained €28.3m. Gross margin has been impacted by several, individually small, temporary pressures while the new Accoya reactor delivering a 50% capacity increase is a little late in delivery. These factors chip away at our forecasts a little but the longer-term picture and investment case remain unchanged. Retain Buy and 100p price target.
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Highlights this quarter:
Economics: Generally, the data points to modest growth continuing, with a more positive trend in PMI surveys suggesting decent m manufacturing momentum over the next six months. Currency weakness continues to be a double-edged sword for U K manufacturers, with exporters gaining competitiveness while input prices have risen. There has recently been a divergence of sterling’s performance against the euro and the USD. Those in commodity or competitive product areas may well have seen margin erosion, while many in intermediary goods have already passed on price increases to their customers. With low unemployment, the prospect of tighter labour markets post-Brexit and public sector pay caps starting to come off also signals the potential for some labour inflation, long absent from the UK industrial scene.
Topic of the quarter: We believe that powerful macro and sectoral pressures will drive further significant changes to the manufacturing supply chain over the next few years. We investigate some of these pressures, with the move to outsource suppliers to low- cost centres, like China, now seeing a slight reverse flow with some restoring to shorten complex and often inflexible supply chains. We see systems technology facilitating greater supply-chain control and efficiency. Brexit will present challenges to the UK supply chain with price and time to market barriers likely to rise, presenting challenges to the UK’s highly integrated and time-sensitive supply chain. Slick distribution infrastructure and greater information sharing with suppliers are likely to prove winning strategies in optimising logistics and gaining stock efficiencies.
Sector valuation: The industrials sector has continued to exhibit strength, with small-cap industrials outperforming by 2 % on last year and larger cap industrials by 17%. Currency and improving economic data have been a positive for the sector. While some other sectors have seen a pick-up in profit warnings over recent months, industrial technology companies have announced generally positive or in-line trading updates that have helped to drive the small-cap Industrials to an EV EBITDA of 8.4x and a P/E of 16.7x with the traditional small-cap discount narrowing.
Companies: SIXH DSCV AXS AMPH ALU AEP AVG CAPD CAR FENR FLO GINV GHH IOF MPE RE/ RNO RBN SOLI SOM SCE TRI VANL VEL ZAM TRT HDD
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We recently hosted our annual Industrial Technology dinner with 14 companies, many of which are active in the materials science arena; having focused previously on composite materials in the aerospace sector, in this edition of Machinations we focus on graphene, with its unique and potentially game-changing qualities and potential applications. Investments in this area remain fairly early stage, but could potentially reap huge rewards. Graphene is well represented in the UK small-cap market by several players.
Companies: SIXH DSCV AXS AMPH ALU AEP AVG CAPD CAR FENR FLO GINV GHH HAYT IOF MPE RE/ RED RNO RBN SOM SCE TRI VANL ZAM TRT HDD
Surface Transforms* (SCE): Progress headwinds (CORP) | Aukett Swanke* (AUK): Interim results (CORP) | Horizonte Minerals* (HZM): Awards further contracts for the feasibility study (CORP) | 7digital* (7DIG): Acquisition confirmed and major new contract (COR) | Accsys (AXS): A year of strong progress (BUY) | Shanta Gold (SHG): Fund raise, debt restructure and acquisition (U/R)
Companies: SCE AUK HZM 7DIG AXS SHG
Accsys (AXS): Tricoya consortium structure completed (BUY) | HML Holdings* (HMLH): Acquisition and upgrade (CORP) | Cambridge Cognition* (COG): Old COG with some cool new tricks (CORP) | Transense Technologies* (TRT): Interim results, further payment from GE (CORP) | Hardide* (HDD): Hardide gains Airbus global supplier status approval (CORP) | Omega Diagnostics* (ODX): Regulatory clearance for Malaria test (CORP) | Allergy Therapeutics (AGY): Interims demonstrate strong momentum (BUY)
Companies: AXS HMLH COG ODX AGY TRT HDD
In a very significant development for Accsys, the company has announced it has reached financial closure to build a Tricoya plant in Hull. This represents an aggregate investment of €68.2m into a facility that should start to generate revenue during FY2020E. The funding is relatively complex: Accsys has raised €14m (gross) new equity for working capital purposes plus €18.9m of loans at the PLC level to enable an overall 74.6% participation in Tricoya Technologies (TTL). Separately, Medite, BP (Ventures & Chemicals), BGF and Hendersons are injecting an aggregate of €34.5m new equity into TTL and Tricoya Ventures (TVUK), while RBS is making available a €15m loan to TVUK. Overall, we are maintaining our 100p price target.
600 GROUP | ACCSYS TECHNOLOGIES | AGGREGATED MICRO POWER HLDGS PLC | ALUMASC GROUP | ANGLO-EASTERN PLANTATIONS | AVINGTRANS PLC | CAPITAL DRILLING LTD | CARCLO | FENNER PLC | FLOWTECH FLUIDPOWER PLC | GLOBAL INVACOM GROUP LTD | GOOCH & HOUSEGO PLC | HARDIDE PLC | HAYWARD TYLER GROUP PLC | IOFINA PLC | M.P.EVANS GROUP | R.E.A. HLDGS PLC | REDT ENERGY PLC | RENOLD | ROBINSON | SOMERO ENTERPRISE INC | SURFACE TRANSFORMS PLC | TRANSENSE TECHNOLOGIES PLC | TRIFAST | ZAMBEEF PRODUCTS
Companies: SIXH AXS AMPH ALU AEP AVG CAPD CAR FENR FLO GINV GHH HAYT IOF MPE RE/ RED RNO RBN SOM SCE TRI ZAM TRT HDD
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Strix has released an AGM statement indicating that trading in the early part of the year has been solid, the new financing facilities have been put in place, product development is on track with 14 new products released during the year and the factory move remains on schedule and to budget. The current trading period is an important one and the scheduled trading update 23rd July should provide more colour on the underlying performance as well as the early indications from the new products already released and the outlook for those that are scheduled to be released in H2. The resilience of the Strix business has been reaffirmed during the current situation with financial guidance having been maintained and the final dividend committed to, a 10% increase yoy.
Companies: Strix Group
Despite some initial integration issues with WatBio (since resolved), Filta generated strong organic growth (+16% YoY) and delivered results in line with expectations. Given ongoing uncertainty around the pace at which self-isolation measures will be eased, we maintain our Hold rating, and will look to reinstate forecasts once visibility improves.
Companies: Filta Group
Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
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TClarke's trading update is refreshingly positive in all key aspects of investors' current COVID fears and hopes. The decision to fully pay the 2019 final dividend sustains income attractiveness (4% yield on the final alone), the avoidance of trading losses in the teeth of the industry lockdown period (after a profitable Q1/20) demonstrates resilience whilst maintenance of net cash balances through April and May illustrate a robustness of cash flows despite reduced activity levels. It has also maintained the order book and has moved quickly to re-structure the cost base ensuring that margin recovery is not entirely dependant upon market improvement. Prudently and we believe reasonably, we are removing all forward forecasts until visibility on revenue recovery and productivity rates into H2/20 become clearer. However, TClarke's operational strengths, financial robustness and cash coverage of dividend in the most testing of circumstances gives us renewed confidence to uphold a Buy recommendation.
FY results ahead due to a waiver of the management bonuses and final dividend is proposed. Current trading is impacted by COVID but there are clear signs of improvement.
Judges Scientific, the group focused on acquiring and developing companies in the scientific instrument sector, has announced the acquisition of UK based ‘Health Scientific Ltd', a world leading maker, and global exporter, of calorimetry instruments. The initial cash consideration equates to £5.3m, with a further £2.0m cash earnout if profits hit £1.22m in 2020. The business generated £4.4m of revenue and an adjusted EBIT of £0.88m (20% EBIT margin) to April 2019, and is expected to have an even stronger year to April 2020, suggesting a ‘6x EBIT takeout multiple' if the earnout target is hit.
Companies: Judges Scientific
In the midst of a crisis, Judges has made what we think is an excellent acquisition in a high growth sector (lithium battery testing). Heath Scientific fits all of Judges’ acquisition criteria and is a business that is well known to management. We think that the current crisis may well throw up more opportunities and, with its strong balance sheet, Judges is well positioned to capitalise on this. FY20E EPS increased by 1.8% and FY21E by 3.2%. DCF based TP raised from 5245p to 5380p. CY21E PE 26.3x. Buy.
New Equity Driving Growth
Costain has raised £100m of gross proceeds. We reduce FY 20 and 21 FD EPS by 45% and 59% due to the dilution.
Companies: Costain Group
TP Group's FY19A results were in line with our expectations, with strong organic revenue growth of +16% YoY. Whilst the business remains resilient, with a large net cash position and a record order book, COVID-19 has caused uncertainty around the timing of some pipeline opportunities. Therefore, in line with a number of other companies, TP Group is withdrawing market guidance. We also withdraw our forecasts and place our recommendation Under Review.
Companies: TP Group
Avation is a lessor of 48 commercial aircraft to a diversified airline client base. Intra-day yesterday, the group announced that, as a result of the present uncertain backdrop caused by COVID-19, the Board had withdrawn from the previously announced strategic review and formal sale process, and that it was no longer in active discussions with any interested parties. The key reasons behind this were 1) the present uncertainty meaning that an attractive valuation was seen as unlikely to be achieved at this present moment in time and 2) the distraction of the process in the day to day operational activities of the business.
Petards supplies advanced security and surveillance systems to the Rail, Defence and Traffic Technology markets. Intra-day yesterday, the group confirmed that its RTS Solutions subsidiary had secured a multi-year renewal agreement for the provision of software support services to one of its major rail customers.
Touchstar is a supplier of mobile data computing solutions and managed services to a variety of industrial sectors. This morning, the group has released full year results to 31 December 2019, alongside providing an update on progress against the present COVID-19 backdrop. In line with the market updates provided in February and April, group revenue in the year increased by 3.2% to £7.1m, whilst revenue from continuing operations, excluding the Onboard business that was disposed of in the year, increased by 7.2% to £6.7m, driven by traction being gained with new products and services. The gross margin in the year increased by 280bps to 53.9% reflecting the greater proportion of software and service income. This resulted in a trading loss after tax before exceptionals of £89k, which post exceptionals of £412k that predominantly related to the disposal of OnBoard, resulted in a loss after tax of £501k. As previously reported, the year-end net cash position stood at £850k, which reflected an increase of £554k in the year; this post £1.1m of new product development expenditure and cash costs associated with the disposal.
Companies: AVAP TST PEG
Filta Group (Filta) announced FY’19 results pretty much in line with our numbers. Adjusted EBITDA was £3.2m, vs. our £3.3m estimate, and revenue was £24.9m, vs. our £25.1m expectation. These figures confirmed that the integration of Watbio was back on track and the business was trading well until COVID-19 struck. Most of Filta’s customers are currently closed, but the company is optimistic that they will bounce back one distancing restrictions are lifted. We have removed our 2020 forecasts.
Today's AGM trading statement guides for 1H20 profit and cash generation to be at least as strong as 1H19. On-line market share gains and swift management action on cost supports a £7.2m EBIT for 1H20.
Trading has recovered from the initial hit from COVID-19, with improving B2B activity adding to strong B2C trends. Revenue has been better than previously expected at both DX Freight and DX Express, with this now running at 10-15% below normal levels for this time of the year, compared with the initial 33% impact at the commencement of the lockdown.
Companies: DX Group
The covid-19 pandemic has had a devastating effect on the share price of property companies, with 31% wiped off the value of their total market capitalisation during the first quarter of 2020.
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