Gamble of the week: wood treatment firm with huge potential
By
Paul Hill Sep 18, 2009
Print this article
While it's reassuring that many homeowners now treat their house as a place to live, rather than as a cash machine, the collapse in property prices has severely knocked the building sector. But where there is maximum fear, there is also the greatest opportunity.
Take Accsys, whose shares have dropped an eye-watering 80% from their peak of €4.50 in July 2007. Accsys owns patented technology – sold under the trade name Accoya – that toughens softwoods such as pines and firs, as well as medium-density fibreboard, using a non-toxic process that enables it to be used as a substitute for hardwood. This is important because hardwoods such as oak, spruce and elm take longer to grow, are more expensive, but are necessary for external projects.
So not only does Accoya save its customers lots of money, but it also helps to protect the environment by reducing the need to chop down large swathes of the planet's scarce rainforests. In fact, so strong is the product that in Arnhem in Holland, where the company has its factory, a heavy traffic road bridge has already been built using the material and is guaranteed to last for 90 years. Better still, the potential market is huge and worth in the region of €165bn a year.
Accsys Technologies (Aim: AXS)
Yet it's early days in the company's development, with the next big challenge being to ramp up its production in Europe and license its technology to third parties in other regions. So far, it's sold two licences covering the Middle East and China, albeit both partners are only expected to finish construction of their factories by 2011. The Chinese firm, Diamond Wood, may have raised €50m, but it still needs more funds to complete its key facility – a default would hit Accsys's liquidity, possibly to the tune of €35m. That could trigger a dilutive rights issue, despite the firm having €17.5m of net cash as at the end of March.
In terms of the numbers, house broker Matrix is forecasting turnover and underlying Ebita to jump from €31m and €1m respectively in 2008, to €100m and €35m by 2011. Clearly these estimates are challenging, but considering the worse of the industry's woes are behind it, they look achievable – especially as in the three months to June revenue from Accoya increased by 51%. On the flip side, big risks include technological change, foreign currency fluctuations, a double-dip recession and counter-party defaults.
Recommendation: speculative BUY at €0.67 (market capitalisation €105m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments
Published in
Tips & advice
| More
articles
by
Paul Hill
Related articles
-
By Jody Clarke, Nov 20, 2009
-
By John Stepek, Nov 20, 2009
-
By Paul Hill, Nov 20, 2009
-
By Paul Hill, Nov 20, 2009
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.
