Some small companies seem destined, like Sisyphus, to spend eternity rolling the figurative boulder up a hill only for it to tumble back as they approach the top.
Take Accsys Technologies. The Aim-quoted company found a way nearly 20 years ago to pickle softwood in acetic anhydride so that it is as tough as hardwood and will last half a century.
I first wrote about Accsys more than a decade ago. Then, few joiners had ever heard of its product, accoya. Even fewer were prepared to work with it.
But last month, while “never seen before” floodwaters seeped through my doors and floors in rural Somerset, my local builder suggested I replace them with accoya. “It’s expensive but it is guaranteed not to rot, even under water”.
The Thames flood defences use accoya. Hollywood star Uma Thurman reputedly has an accoya bath. Now Accsys is producing about 63,000 cubic metres of the stuff every year and is building a manufacturing plant in the US, which it hopes will add another 40,000 cubic metres annually by mid-2024. That’s still mere kindling in a timber market estimated at 800mn cubic metres. But it seems impressive for a business turning out 25,000 cu m a decade ago.
Yet the shares, at 53p, are below where they were a decade ago.
They touched 190p two years ago. But the stock suffered alongside the rest of the building sector, which is painfully sensitive to energy prices, interest rates and cost inflation.
Last autumn, Accsys warned of poor trading and the share price plunged as Numis, its nominated adviser, cut its 2024 forecast for earnings before interest, tax, depreciation and amortisation from €23mn to €10mn. Its 2025 forecasts dropped from €31mn to around €16mn.
Shortly after, Accsys tapped investors for another €34mn to fund a plant in Tennessee. Numis dropped its forecasts to €3mn in 2024 and to €5mn in 2025 and is now projecting a loss per share for the next couple of years. The shares have tumbled again.
The market is sensibly wary of another small business pioneering a new product in a new market while securing manufacture on a commercial scale. Juggling costs and financing growth has been a fumble too far for many.
“The challenge has been getting enough product to market at an attractive enough price,” says broker Clyde Lewis at Peel Hunt.
Paul Clegg, a former Accsys chief executive, likened the task in 2017 to “crossing the valley of death”.
“Any technology is all about [securing] repeat financing, particularly for capital-intensive companies,” he told me. Accsys has repeatedly called on investors for funds to shore it up and help build capacity in the Netherlands, the UK and the US.
Jelena Arsic van Os, Accsys’s new chief executive, is pinning her hopes on the US, which is enjoying a boom in construction and infrastructure investment sparked by President Joe Biden’s policies. “We are at a tipping point,” she says.
Shareholders will take it badly if she is wrong. A little over a year ago, Accsys ended a joint venture to produce tricoya — an accoya-based version of modified fibreboard — in Hull and put production on hold while it assessed the plant’s viability. Hull still sucks up €6mn in cash a year, reckons Numis.
However, there are enough signs that interest rates are peaking to have lifted shares in other building materials groups. Labour leader Sir Keir Starmer, who leads the polls ahead of the coming UK election, has vowed to bulldoze through restrictions to build new homes for a rising population. British politicians of every hue are pushing for sustainable and eco-friendly ways to do that.
Andy Hanson, head of research at broker Zeus Capital, says the construction industry is being forced to count the carbon cost of heating kilns to whopping temperatures to make bricks and mortar. Cement production alone is blamed for generating about 2.5bn tonnes of carbon dioxide alone a year. There hardly seems to be a construction business that isn’t investing in being cleaner.
Ibstock says it is diversifying into low carbon bricks and concrete. Holcim, the world’s biggest cement maker, plans to win over climate-conscious investors by “decarbonising building” and raising sales from environmentally efficient or innovative building products by a half to 30 per cent by 2025.
Accsys differs from brickmakers and cement mixers in that it has developed a proprietary process to create a new sustainable wood, as timber is increasingly used to replace traditional building materials. “Every cubic metre of accoya used instead of [slower-growing] hardwood has a sustainable impact,” says van Os.
“Illegal logging accounts for up to 30 per cent of the global timber trade,” she explains. And deforestation — of which perhaps half is due to illegal logging — contributes to a fifth of annual global greenhouse gas emissions, according to various government stats.
But there are other quoted building material minnows that are similarly rated to Accsys. They are better established, almost as green and will also benefit when the cycle turns. Many of these groups have stronger balance sheets and even pay dividends, brokers point out.
David Buxton of broker Cavendish champions Norcros, whose electric showers help save water. It is taking market share and its dividend yield is over 5 per cent. However, as I look at the bathroom fittings brochures piling up beside me, I worry it is operating in a ferociously overcrowded sector.
Both Buxton and Lewis are fans of Alumasc, which is more of a conglomerate focusing on water management, drainage, gutters and recycled plastics. It has a green-roofing business that helps to control storm water and absorb carbon dioxide and its customers include Hong Kong’s Chek Lap Kok airport. It yields 7 per cent.
Alternatively, suggest Lewis and Hanson, there is Volution — an asset-light maker of fans and air purifiers which benefited from a government-led drive to improve air quality in social housing. The shares are up 14 per cent this year and trade on a price/earnings ratio of about 16 times. But ebit (earnings before interest and taxes) on sales average 21 per cent and “it deserves that high rating”, says Hanson.
Nonetheless, it seems to me Accsys is doing something different. I concede that even if accoya is guaranteed to last for 50 years, Accsys’s shares may never make it over the brow of the hill. However, I can’t help wondering whether Sisyphus could have cheated fate with a push from behind and a helping hand from above.
