Accrol Group Holdings plc (LON:ACRL) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.
Q1: Accrol Group Holdings earlier this month announced the acquisition of LTC. This looks like a good deal for the company, what are your thoughts on that position?
A1: We think it’s a very good deal, a very good fit between the two businesses as well so LTC is a very established, it’s well-invested tissue converter and if you look at the financial track record it’s delivered, we think that kind of speaks for itself.
So, we’ve seen a compound average growth rate between 2017 and 2019 of about 70%, it brings for high quality tissue conversion lines as well and we think that it’ll take the combined revenue capacity to around £220 million on very new kit as well.
Also, I think it takes the group’s private label market share from about 26% above 30% so considering what we think they paid for it in terms of less than five times EBITDA, when you incorporate some of the anticipated cost synergies then we think that’s an attractive price for a strategically important business.
Q2: So, presumably you’ve upgraded your forecasts?
A2: Yes, so I think in the first full year of ownership, to April 20 22, we think this will be about 14% EPS-enhancing on what we believe to be conservative assumptions. We think that accretion could grow if there were more contracts and also new synergies come through as well, which we’ve not factored into this transaction.
So, it stacks pretty well financially.
Q3: Just picking out those synergies, what are the key benefits of this deal?
A3: So, obviously, there’s new customers that they can integrate, the business has got some new equipment and that gives it more capacity, the business in itself is high growth with good margins as well. There’s clearly room for cost synergies and revenue synergies in this business.
I think given the track record of the management team the growth market Accrol Group Holdings finds itself in with the discounts of having that extra capacity, with a strong management team, should lead to a strong ongoing growth over the next couple of years.
