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Stock pick for 2022: Accsys Technologies
Accsys (AXS:AIM) is a global leader in sustainable wood technology and sells its products into the construction and building materials industries in the UK, Europe, North America and Asia through timber distributors.
Its Accoya wood product is both sustainable and high-performing, with a 50-year guarantee, which makes it an ideal replacement for man-made, carbon-polluting alternatives like aluminium and plastic, which are also difficult to recycle.
Given the firm sold just over 60,000 square metres of Accoya in the year to March 2021, and the addressable global market is over 2.6 million square metres per year, there is significant room for Accsys to expand.
Meanwhile, the potential market for panels made from Tricoya, which is chipped Accoya used to make MDF (medium density fibreboard), is over 1.6 million cubic metres, which is still only 1% of the global MDF market.
Demand is being driven by increasing regulation and the need for firms manufacturing building products, such as doors and windows, to be able to offer more sustainable products.
The company is expanding production of Accoya at its Arnhem plant as quickly as possible to keep up with demand, while its first Tricoya plant in Hull is expected to begin manufacturing next July.
Within five years, Accsys expects its combined output of Accoya and Tricoya to be more than five times last year’s total, and even then it still has an enormous runway for growth.
Producing Tricoya chips in a dedicated plant will not only dramatically improve capacity but it will free up more Accoya wood for sale, which together with increased output at Arnhem will allow the company to meet the demands of larger-scale manufacturers who need to ensure supplies.
The firm has a joint venture agreement in the US with Eastman Chemical for the production of Accoya in North America, which will significantly increase turnover.
As sales ramp up, earnings are set to jump significantly which will naturally bring Accsys’ price to earnings multiple down to a more realistic level, with analysts at Edison forecasting a 2024 financial year rating of around 25 times net earnings and just over eight times operating earnings.
Given the firm is likely to need to invest all its surplus capital to grow the business, we wouldn’t expect it to pay dividends for some time.