Shares in Accrol (ACRL:AIM) slumped 21% to 35.5p after the toilet roll, tissue and kitchen roll maker warned earnings for the year to next April will be lower than previously expected due to a time lag in passing on increased supply chain costs to customers.

The HGV driver shortage, rising raw material prices and a slower than expected recovery in footfall for discount retail customers have conspired to constrain sales and profit growth, although the company believes it can maintain EBITDA margins this year as operational efficiencies and synergies from recent acquisitions partially offset the pinch from higher costs.


As Shares outlined here in August, Accrol sells non-discretionary products and is well placed to benefit from the anticipated recovery in tissue volumes as the effects of the pandemic unwind.

Unfortunately, energy price increases, input shortages and general inflationary pressures have sent its pulp and parent reel production costs sharply higher.

Furthermore, the scarcity of HGV drivers has limited Accrol’s ability to physically deliver products to customers on time, thereby restricting revenue growth and only serving to increase costs further.

While these cost increases are successfully being passed on to customers, there will be a time lag in passing on their full impact, meaning profits for the year to April 2022 will fall short of previous forecasts.


Accrol is now guiding to year-on-year revenue growth of 25% and a 20% improvement in adjusted EBITDA, indicating downgrades to consensus estimates of 10% and 27% respectively.

While acknowledging the short-term challenges facing the business, management also struck an optimistic tone, insisting Accrol remains in ‘excellent operational shape with scalable foundations for growth and a strong market position across UK retail’.

The company also ‘remains well placed to benefit from the ongoing recovery in volumes in the discount sector and a more stable cost environment, as the full effects of the pandemic and broader supply chain and distribution constraints unwind’, adding that its liquidity and cash flow position ‘remain robust’.


Liberum Capital reiterated its ‘buy’ rating on Accrol, although the broker downgraded its price target from 95p to 80p on the disappointing news.

‘While the group has seen very substantial cost increases over the last six months, Accrol is in a structurally much stronger position to deal with these pressures than at any time in the past’, insisted the broker, reducing its 2022 sales forecast by 13% to £171 million and its EBITDA estimate by 28% to £18.7 million.

Shore Capital believes Accrol is ‘doing the right things in terms of mix, cost control and price recovery in markets where transparent supply constraints are proving challenging for all to manage.

‘We note the current pressures but also look through the curve to a well invested and resilient everyday business with bright prospects,’ said Shore Capital. ‘Given the recent share price decline and updates from other companies in relation to well-known supply chain issues, we believe this morning’s update will come as no major surprise to investors.’


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Issue Date: 20 Oct 2021