Accrol Group thoughts from Liberum Analyst Anubhav Malhotra (LON:ACRL)

Accrol Group Holdings plc (LON:ACRL) is the topic of conversation when Liberum’s Analyst Anubhav Malhotra caught up with DirectorsTalk for an exclusive interview.

Q1: What are the highlights from the 1H’23 results? 

A1: Accrol achieved a very strong +64% net revenue growth in 1H’23. The majority was driven by price increases, up 50% yoy, which is an excellent achievement as the company has been able to pass through £80m worth of annualized cost inflation over the previous 12 months to its retail customers. Accrol also managed to grow volumes by +14% yoy in 1H’22 in a in a UK tissue market that grew just 1%, leading to an increase in the group’s volume market share to 21.5% from 19.5% at end of FY’22. Consumers are dealing with high inflation by switching to private label products and by increasingly shopping with discount retailers, and as a leader in private label tissue products with an over indexing to discounters, Accrol is well-positioned in the current environment. The group achieved an adjusted EBITDA of £7.1m in 1H’23, up 41% yoy, driven by price increases and strong control on operational costs.

Q2: What can investors expect in 2H’23?

A2: Accrol has seen a strong start to 2H’23E and expects volume growth seen in 1H’23 to continue in 2H’23E, driven by continued strengthening of private label. Full year FY’23E sales are guided to be c. £230m, up 44% yoy, implying guidance of 27% growth in 2H’23E. As the full benefit of higher price increases comes through in 2H’23, the group expects an improvement in profitability in 2H’23E with full year adj. EBITDA guided to be £15.5m at a 7.8% margin, increasing from 5.8% achieved in 1H’23 and 5.7% in FY’22. Leverage is expected to fall further as investment in working capital in 1H’23E reverses and the group guides to ending the year with c. 1.5x net debt/EBITDA.

Q3: The company has completed its strategic review and decided to build its own paper mill. How transformational will that be for business and what are the timings?

A3: In its strategic review announcement, the group has today outlined its plan to build its own paper mill (instead of buying one) with the intention to have it operational by mid-2025.The mill is expected to produce c. 70k tonnes of paper at full capacity, which will represent c.40% of Accrol’s expected annual tissue volume. Having its own paper mill would help reduce the volatility the company faces in in tissue input costs for the UK tissue conversion business, providing greater customer pricing visibility and certainty. It also enhanced security and visibility of tissue supply, which will reduce working capital requirements in the UK tissue conversion business. It will also help bring more profits in-house. 

Accrol Group Holdings plc (LON:ACRL) is the UK’s leading independent tissue converter, producing toilet tissue, kitchen towel, facial tissue and biodegradable wet wipes. The UK soft tissue market is worth £1.6bn with private label products comprising circa 50%. Accrol is the leading supplier to the private label market, which is growing at over 8% year on year.

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