Shares in Accrol (ACRL:AIM) slumped 18.7% to a one-year low of 25p after its second severe profit warning in four months.
Accrol, which supplies loo rolls, tissues and kitchen wipes to many leading UK supermarkets and discounters, is being tightly squeezed by rising energy costs but paper pulp prices have also been rising sharply, as have supply chain costs.
The warning is serious enough to spark the company into kick-starting a full strategic review of the business, which explains the severity of the share price plunge.
‘EXCEPTIONAL’ ENERGY PRICE HIKES
Since warning on profits on 20 October 2021, Accrol said it has experienced ‘further inflationary pressure on input costs’, most significantly ‘exceptional energy price increases’, which have temporarily impacted margins and profitability.
As a result, revenue for the year to April 2022 is now expected to grow by 17% to roughly £160 million, with adjusted EBITDA set to fall from £15.6 million to just £9 million, more than 50% below consensus, with margin recovery anticipated next year.
Management believes it can pass on these higher costs to customers, but the time lag means earnings will fall materially short of forecasts.
Accrol’s management insisted the underlying business is in ‘good shape’ and despite ongoing supply chain disruption, continues to ‘manage customer supply well, having secured and maintained additional stocks in paper and finished goods’.
Nevertheless, given the latest warning and the earnings volatility Accrol has experienced this year, the board will conduct a full strategic review of the business.
WHAT ANALYSTS ARE SAYING
Following the latest alert, Liberum Capital reiterated its ‘buy’ rating on Accrol, though the broker lowered its price target from 80p to 60p. In line with guidance, Liberum cut its full year 2022 EBITDA forecast to £9 million, though it takes ‘a more prudent view’ for 2023 by downgrading its EBITDA estimate from £24.5 million to £15.1 million.
‘The underlying business continues to remain solid with sufficient liquidity and while this news is disappointing, we would hope our forecasts are too prudent and management can deliver on numbers ahead of our medium-term forecasts’, said the broker.
‘The structural improvements made in the business over the past few years is testament to the current management that even at peak cost pressures, the business is still forecasted to earn a 6% EBITDA margin.’
