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  • Mark Watson-Mitchell

Accrol Group Holdings – the interims in mid-January will bring about an upward re-rating

Despite this group’s Chief Executive selling 1m shares in the company at the beginning of last week, I fancy its shares as a good punt for January.


His sale was for ‘personal reasons’, although it was a good line of stock, it was just about 18.5% of his holding.


The disposal leaves Gareth Jenkins holding 4.42m shares, representing 1.39% of the group’s equity.


Why do I like the ‘punt’?


Simply because the ‘tissue’ company will be announcing a very good set of interim figures in a few weeks, which I believe will show that its shares are really appealing.


Accrol Group Holdings (LON:ACRL), which is the UK’s leading independent tissue converter, is estimated to be in line to see pre-tax profits for the year to end April 2023, multiply some six-fold on just a near 40% jump in current year sales.


The company is a converter and supplier of toilet tissues, kitchen rolls, facial tissues, and wet wipes to many of the UK's leading discounters and grocery retailers across the UK.


The £90m capitalised group operates from six manufacturing sites, including four in Lancashire, which now supplies 21.5% (volume) of the UK tissue market, which at retail sales value is valued at £2.1bn.


The group supplies a substantial array of top retail companies, including Aldi, Morrisons, Lidl, Tesco Booker, B&M, Poundland, Wilko, Spar, Sainsburys, Amazon, Dhamecha Cash & Carry, Home Bargains, Boots, Ocado, Unitas, Savers and Superdrug amongst hundreds of others.


As a matter of interest, the retail sales value of the UK Tissue Market is broken down about 67% Toilet Tissue, 14% Facial Tissue, and then Kitchen Towels making up the 19% balance.


Commenting on the first six months to the end of October, CEO Gareth Jenkins has stated that:


We have seen volume growth of 14% against a flat overall UK market performance over the same period. We have delivered this by having great quality and value products that meet every consumer's budget. Our strong relationship with the retailers and our robust supply model is ensuring we can continue to deliver a strong set of results in a difficult market environment."


The Equity – good professional support


There are some 319m shares in issue.


The larger holders include Lombard Odier Asset Management (Europe) (15.0%, Schroder Investment Management (11.6%), Premier Fund Managers (9.89%), NorthEdge Capital (8.62%), Tellworth Investments (6.40%), Momentum Global Investment Management (5.30%), Killik & Co (4.785), Canaccord Genuity Wealth (4.65%), Gresham House Asset Management (4.35%) and Daniel Wright, Chmn (3.92%).


Broker’s Views – a strong structural growth story


Analysts Mike Allen and Rachel Birkett at Zeus Capital, the group’s NOMAD and joint broker, have been impressed by the group’s ability to increase market share by 2% to 21.5%, at the same time as increasing its prices to cope with material cost rises.


Zeus rates the first half’s trading to have been robust, while the group’s net debt position at around £30.5m at the end of October was better than expectations.


For the current year to end April 2023 Zeus Capital have estimates out for £220.0m (£159.5m) sales, adjusted pre-tax profits of £6.7m (£1.1m) and earnings of 1.7p (0.3p) per share.


For the coming year the brokers go for £229.8m revenues, £9.9m profits and 2.3p earnings.


For the year to end April 2025 they forecast £237.7m sales, £11.5m profits, and 2.7p earnings.


The brokers have a discounted cash flow analysis value of 42.5p on the group’s shares, while suggesting they could be worth 56.8p each on hitting various scenario criteria.


Joint broker Liberum Capital rates the shares as a Buy, looking for 60p a share as its price aim.


Their analyst Wayne Brown noted the very strong first half, with private label volumes being higher than pre-pandemic levels.


For this year £218m sales, £7.5m profits, 1.8p earnings and a 0.4p per share dividend.


The 2024 year could show through with £229m sales, £13.9m profits, 3.1p earnings and a 0.6p per share dividend.


Jumping up to 2025 could provide £240m revenues, £15.7m profits, 3.5p earnings and 0.7p per share dividend.


My View – interims will see a re-rating


Come the middle part of January this group could be seeing its prospects and its shares being re-rated strongly upwards in anticipation of even better times ahead.


The strong point is the acceleration in the growth of the group’s private label, and better margin, business.


The shares, which touched 66p in April last year, closed on Friday night at just 28p, at which level I consider them to be an excellent re-rating bargain for the early part of the New Year.


(Profile 12.03.19 @ 22p set no Target Price).


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