Accrol Group Holdings PLC (LON:ACRL) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview
Q1: Now, Accrol Group issued a trading statement today, what’s your view on the statement?
A1: So, I think in terms of the trading update, they confirmed that they’re performing in line with market expectations for the year to 30th April 2017, we think that during the periods of higher inflation more consumers will move into the discount sector and private label products and I think Accrol Group is very well positioned there. So, we think the business is well positioned for future growth and they managed their FX exposure very well during the year via hedging arrangements as well so yes, I think they’re performing well and are well positioned for the future.
Q2: So, what can you tell me about your forecast assumptions?
A2: We’re maintaining our forecast assumptions for now but we are expecting double digit revenue growth through to 2019 on fairly flat margin assumptions which should translate into 20% earnings growth for the next couple of years, strong cash generation we’re expecting as well to pay down most of the debt that they had from IPO in 2019. I think based on these assumptions the return on capital should be approaching 20% by 2019 as well and it’s also backed by a very strong free cash flow yield of 8-10% so they’re ticking a lot of boxes in terms of growth, cash generation and unique market positioning.
Q3: What your view on the stock’s valuation at the moment?
A3: I think with the 2017 numbers essentially delivered, as we look into 2018 and 2019 the PE is on less than 12 times 2018 to April, falling to 10 times in 2019, the dividend yield is about 4% and growing progressively and the EV EBITDA is sub-9 times so I think keep given the cash generation and rising return on capital profile, I think with the valuation still looks reasonable to us given how they’ve chose to perform this year as well.
