Research Morning Notes for 23/12/2013
Accsys: Breakthrough: First fully effective licence agreement
Ballast Nedam: Large contract wins
BAM Groep: Expecting significant growth in Germany
Top
Accsys (Buy): Breakthrough: First fully effective licence agreement
The facts: Accsys announced that the board of Solvay has formally approved the licence agreement for Accoya, reflecting the starting signal for the construction of the first licence plant for Accoya.
Our analysis: Accsys's strategy focuses on two revenue streams, the first is the production of Accoya in its plant in Arnhem and the second is revenue streams from multiple licence agreements for both Accoya and Tricoya.
Growth momentum of Accoya is strong, fuelled by increasing industry recognition and further market penetration. In the first half of the current book year ending 3/2014 the company reported 62% growth in sales to Accoya customers. We expect Accsys's production plant in Arnhem to be EBITDA positive this year now that the break-even level of 17,500 m³ has been surpassed. The company as a whole is expected to be EBITDA positive in fiscal year 3/2016.
Accsys aims to maximise the global use of Accoya and Tricoya through licensing its technology. Until now there wasn't any licence plant operational. The Solvay licence is therefore a very important breakthrough for the company following several (optional) licence agreements, which didn't result in the construction of a licence plant, such as the one with Diamond Wood.
This licence agreement grants Solvay the exclusive rights for 15 years to produce and sell Accoya within about 40 European countries, whist the Netherlands, Belgium, Luxemburg, UK and Ireland remain territories of Accsys. The first constructed plant has a capacity of 63,000 m³ Accoya output and Solvay has an option on more plants. Accsys will receive licence and royalty fees, building up to about EUR 2.5m per annum when nearing full capacity.
New to the agreement is that Solvay is exploring possibilities of constructing the plant on Accsys's land in Arnhem instead of in Freiburg, Germany, in order to create economies of scale. On top of that, the companies are exploring coordinated operational and maintenance services for both companies in Arnhem, which could offer Accsys another stream of income. Although both these factors increase the eventual value of the Solvay licence, it also means a delay in construction of the plant of about 3 months. The first production is now expected early 2016, by which time the company's Arnhem plant could have already reached the stage of full capacity.
The Solvay licence could have a positive impact on the market with more companies possibly following suit. Currently, Accsys has a conditional licence agreement for Tricoya with Medite. Approval from the board is expected mid-2014 with the plant fully operational early 2016. Accsys is currently in early conversations with several potential licence partners for both Accoya and Tricoya.
Our Base Case scenario takes into account the production at Accsys's own production plant, the Solvay licence agreement and the conditional agreement with Medite (attaching 50% success rate). We have made a separate valuation for the Solvay license, which adds EUR 0.04 to Accsys DCF value. Previously we attached a success rate of 80% to this license into our DCF model. We raise our price target from EUR 0.19 to EUR 0.20 to incorporate the now fully unconditional licence agreement with Solvay.
The Optimistic scenario anticipates multiple license agreements such as the Solvay one, which hints on a potential value of EUR 0.30.
Conclusion & Action: The fully effective Solvay licence agreement is a very important breakthrough for the company as this signals the start of the second stream of income next to the revenues from the production plant in Arnhem. We raise our price target to EUR 0.20 and maintain our Buy rating.