OPPORTUNITY KNOCKS FOR AXS - 26/06/25

Like many other investors, I am always on the lookout for potential growth prospects, particularly when it comes down to novel or disruptive plays.

Whilst the stock market graveyard is certainly littered with many that briefly flattered to deceive before their inevitable demise, those that do go on to achieve success, can prove to be highly rewarding investments once gaining traction.

One company that recently caught my eye and where I have subsequently made a couple of purchases of the shares is Accsys Technologies, (AXS) a company that is focused on a unique softwood product that has a massive addressable market.

Having bought at 58p and 61p per share, they currently stand at 64p, although the broker Panmure Liberum who initiated coverage just last month has a £1.00 target price on the stock.

Aside from being listed on the AIM, AXS shares are also quoted on Euronext Amsterdam.

Whilst it may be tempting to conclude that for now it is better to steer clear of anything remotely construction related in the current climate, I feel that this London based company could have a bright future, given that there are numerous benefits of the products it provides which should drive demand.

Having just released its full year 2025 results, AXS delivered revenues of €137m, which in turn saw positive EBITDA of €16.8m that was significantly up on last year’s €8.5m, coming in ahead of broker Panmure Liberum’s expectation of €15.9m.

Of course, given ongoing and extensive investment that has been made, the company at present remains loss making, with a PBT deficit of €9.9m being recorded.  Add to that a net debt position of €42.6m, then no doubt some will focus on the bear points and elect to look no further.

Such negative numbers are however not surprising, given the growth path that has been pursued and with an exciting and superior product on which to ramp up on revenues, then the picture could change very quickly in the next few years.

On the back of the results, I was fortunate enough to speak for the first time with CEO Dr Jelena Arsic van Os, who talked of the company now being at a real inflexion point on its journey

With extensive building blocks having been put in place, there would now appear to be a real platform for sustainable growth and in turn positive cash generation.  

Whilst some may not be overly excited by what may be perceived as just another building product, it is arguably worth taking a much closer look at the company and its key offering, that being its  Accoya softwood product.

This is best described as being a modified softwood product that boasts exceptional durability, stability, and importantly rot resistance, which now sees it being a preferred and often high-end solution for a wide range of applications.

Although it is a softwood, Accoya performs in many ways similar to that of a hardwood product where there is a 50 year-warranty for above-ground use, although the expected life is actually for 75-90 years.

As a direct comparison to hardwood, data from AXS’s own in-field research highlights that windows made from Accoya will have an expected lifespan which is (at least) twice that of traditional hardwood.

This ultimately boils down to the product being highly rot resistant, making it ideal not merely for exterior windows, but wood cladding, fascias and more.

The wood product is proven to be dimensionally stable and highly durable, qualities that are increasingly important in a world that is increasingly looking to sustainable products, which is where the company's offering sits.

Jalena informed me that the wood itself comes from very fast-growing trees, the bulk of which, but not all, are sourced from N. Zealand where importantly they are grown in sustainably managed forests.

The wood is derived from Radiata Pine trees which, having been felled, then undergo AXS’s own acetylation process via a non-toxic practice which greatly enhances the wood's properties.  

Holding numerous patents for its applied technology and offerings, AXS produces and treats the wood at its own plants in the Netherlands and the UK, along with a more recent operation in the US, the latter of which is the result of a joint venture with the giant Eastman company.  

As part of my own research into the merits of the wood, I managed to speak with a couple of smaller construction companies I know in the Cambridge area, testing the water to see if they had either heard of Accoya or even used the product.

Such sounding boards can often prove insightful, so suffice to say, in this instance the feedback was very positive, with one stating that they will recommend nothing else for specific exterior applications.

With that in mind I delved further, where I concluded that with strong environmentally friendly credentials alongside its other positive disruptive attributes, AXS has a significant opportunity on which to drive growth.  

Speaking with the CEO, I learnt that the company is already supplying its products worldwide, but with the US based operation in Tennessee now up and running, the vast US market provides for a further significant opportunity and the market can now be serviced from its new operation.

There are no tariff issues on timber and even if there were to be in the future, the new US facility would mitigate anything that may arise, with supply and sales being serviced internally.

Jalena talks of a strong and mutually beneficial relationship with Eastman at the US facility (60% AXS owned) which puts it in an ideal spot across the US construction market that is second only to China globally, having a projected value of nearly $2.24 trillion by 2027.

She also explained to me that in the process of treatment of the wood at its Tennessee operation, acetic anhydride is piped from an Eastman Chemical facility that is located directly next door.

Given what is a closed loop design of the jointly owned facility the acetic acid by-product from the process is actually piped directly back to Eastman Chemicals. This provides for any avoidance of production bottlenecks, whilst further reducing carbon emissions.

Whilst the CEO is clearly excited by the growth opportunities that exist throughout the US, she also spoke positively on Europe alongside other areas across the globe, where AXS is already supplying and expanding.  

Despite operating in a difficult economic climate, AXS has made notable positive progress during 2025 where the current financial year is reported to have started well, with activity levels being described as encouraging across both Europe and North America.

The CEO acknowledges that the business is at the mercy of global trends and macro factors, but nevertheless adopts a positive tone regarding achieving their goals in the current financial year.

Importantly, the company has a clear strategy and path on which to accelerate which includes the ability to now markedly increase its volumes across the various plants and without further significant investment.

Although net debt increased during the reported 2025 numbers, the CEO explained that this was very much down to the investment required on which to further drive the business, where, given the progress that has been made and where the company is now at, this should subsequently swing back and begin to reduce.

Broker Panmure Liberum is forecasting net debt to fall to €39m this year and €36m next year, as revenues are expected to grow to €155m euros and €188m.

This should result in a near break-even on the profitability front this year, paving the way for a €7.2m PBT next year and the broker sees the balance sheet as being unleveraged by (no later than) FY30.

Clearly, the ramp up in volumes and servicing growing demand will be key, where, as operational gearing really kicks in, an increasingly positive financial performance should become apparent.

Aside from its key Accoya wood offering, the company has now added the ability of colour which is ideal for the decking market and whilst this is only currently available in grey, others are set to follow with a brown offering likely to be the next in line.

The company also offers what is known as Tricoya, a product that is best described as a very high-performance exterior MDF panel.

The beauty of this product, the CEO explained, is that although it resembles and offers the versatility of a typical MDF product, it does not succumb to the harsh elements and performs in much the same way as the Accoya product, being moisture resistant, waterproof and protective against rot.

 It can also be used as an effective alternative for concrete, plastics and even metals in specific construction settings, whilst  internal deployment is also an option.

Although originally produced at a factory in Hull here in the UK, the company took the decision to exit that location and Tricoya is now solely produced at the company's Arnhem plant in the Netherlands.

Taking another look at the overall addressable market for its offerings, Gresham House noted that the global timber market is forecasted to grow from the $805bn of 2024 to $1,054bn in 2028. This +7.0% CAGR is expected to be driven by a cyclical upswing in construction activity; the on-going structural increase in urbanisation; and a growing demand for sustainable and eco friendly building materials.

The eco friendly aspect is very much worth noting, as the products and offerings from AXS very much score on this front, ticking the boxes alongside the benefits of a long lifespan.

Whilst to date adoption of the companies products has been strongest in areas such as windows, doors, decking and cladding where combined they currently represent over 95% of volumes, there is sizeable scope for the products to be incorporated into wider construction markets and solutions.  

In what is very much a premium product which therefore has a higher upfront cost, the payback over the longer-term is rewarding through effectiveness and high performance, thus balancing the investment as the product of choice.

The AXS products are not found or bought from the everyday materials supplier, rather, they are sourced by end users through major timber distributors and suppliers such as James Latham, Arnold Laver and International Timber here in the UK.

Although AXS has been on the stock market for a number of years now and has no doubt proven to be a frustrating investment for long term holders, the prospects at this stage appear to be greatly improved.

The board of Directors has been somewhat overhauled in the last few years, with CEO Jelena taking up the role in 2023 having been involved with some major companies including a seventeen-year stint at Akzo Nobel. 

CFO Sameet Vohra who only came on board last September also brings a wealth of experience, where he was CFO at Science Group and Sureserve amongst others.

It is also worth noting NED Louis Eperjesi too, who provides for valuable industry insights, boasting a wealth of experience across the construction material sector, having been CEO at Tyman alongside currently sitting on the board at Howdens, also as a NED.  

In its most recent note Panmure Liberum commented,

“Given the price premium of the product, and its gross margin profile, we expect underlying EBITDA margins (including the 60% share of the joint venture) to reach 17.4% by FY30. Meanwhile, cash conversion is likely to be high”

The margin figure quoted appears at the upper end of the sector and looks attractive to me against peers,  suggesting that the business has scope to reward.

Although the shares have spiked up in recent months from previous lows, I am not anticipating a repetition of that in the new financial year. 

Rather, I am hoping for a continued steady rise northwards that should accelerate as construction activity recovers and AXS delivers on its growth plans.