1. Accsys PLC

Accsys (LSE: AXS) is a building supplies manufacturer that produces and sells sustainable wood for construction. With its headquarters in London, Accsys sources wood from several locations across northern Europe, then exports it to countries around the world. The benefits of using wood as a building materiel are twofold. One is that wood is a renewable resource that can be carefully managed. The second is that wood acts as a carbon sink, a way to collect CO2 from the atmosphere and store it indefinitely. Storing carbon will become an important part of the green transition and could be a great source of revenue for the company in the future.

Accsys also treats its wood with unique chemicals to make it more durable and extend its effective lifespan.

Accsys does have some challenges to overcome. It has weathered the pandemic but took on debt to do so. However, revenues are up, and if Accsys is able to reduce its debt to pre-pandemic levels then I think it has a chance to become a great, renewable, growth stock.

2. AFC Energy

AFC Energy (LSE: AFC) is a Surry-based designer and manufacturer of hydrogen fuel cells and other hydrogen products. It currently has a patent on several modular fuel cell designs that are transportable and able to run on lower quality hydrogen (meaning with more impurities).

Hydrogen fuel cells work by mixing hydrogen with oxygen, releasing electricity and heat. Producing hydrogen is currently difficult and expensive, but it is possible to do so in a renewable fashion. This is called green hydrogen. If fuel cells are able to use lower quality hydrogen, then producing it will become cheaper, encouraging adoption by everyone else.

AFC has a great market capitalization of £342m and is currently trading at a very cheap 50.82p. It also doesn’t pay a dividend, which is something I like in new companies.

AFC has struggled through the pandemic and only has enough cash to sustain business for another year. It is expected to increase revenue by 100% each year, but is not projected to become profitable for another three years.

I strongly believe that hydrogen power has massive growth potential and will really help our economies to become more renewable. But for now, I will just be watching how AFC manages over the next few years.

Conclusion

The green transition is happening right now, and presents a very exciting opportunity. Both of the companies I’ve looked into today are relatively small, and have clear issues which need to be resolved. But I think they both have big potential upsides. I will not be adding either to my portfolio just yet, but will continue to keep a close eye on them both.

The post 2 ‘must watch’ FTSE 350 renewable stocks appeared first on The Twelfth Magpie.

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James Reynolds does not have a position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But interim results released Wednesday make for encouraging reading, with the firm reporting a rise in revenue to €28.3m (against €25.1m in the same period last year).

Demand is apparently growing worldwide, and the company’s Accoya plant is running at full capacity to meet a 13% rise in sales volumes.

There are big questions over when we’ll be seeing first profits and whether Accsys has the liquidity to reach that target, but I’d say the balance is very much on the positive side now. Though debt did rise significantly from €5.7m to €23.1m, cash also grew during the period to €46.9m from €7.9m a year previously, thanks to funds raised for the expansion of the firm’s manufacturing plants.

Capacity expansion

And to that end, the company expects capacity at its Arnhem Accoya plant to grow by 50% early next year, and the construction of a new Tricoya plant is under way in Hull — sales of Tricoya panels are up by 24%.

Chief executive Paul Clegg said: “We continue to see good global demand for both Accoya and Tricoya in an important year for Accsys. We are making transformational changes to our manufacturing capacity to meet this demand, having secured significant support from shareholders and our industrial and financial partners.“

That suggests Accsys really could be close to the point of profitability, and I’m warming to it despite my earlier bearishness.

Engineering startup

Van Elle Holdings (LSE: VANL) is something we don’t see in the UK every day — a startup engineering business. 

The company, which floated just over a year ago in October 2016, describes itself as a “geotechnical engineering contractor offering a wide range of ground engineering techniques and services to customers in a variety of UK construction end markets,” and produced a mixed set of results for the year to July 2017.

Though revenue and underlying EBITDA rose by 11.8% and 12.9% respectively, underlying earnings per share (EPS) came in flat with reported EPS down 19%. Operating cash conversion rose impressively from 79.6% to 91.9%, but return on capital employed dropped from 38% to 30.6%.

Yet Wednesday’s trading update gave cause for optimism, telling us that “trading in the first half of the financial year has been positive and the Board expects to report turnover of approximately £53m” — and that’s significantly better than the £43.1m recorded in the first half of 2016. Underlying pre-tax profit is expected to grow by 15%.

Low valuation

Van Elle hasn’t exactly pleased investors with its share price performance so far, but this latest update did give the shares a 9% boost on the day to 86p, and forecasts make the shares look like a bargain to me.

Theres no EPS growth predicted for this year (though I can see that changing now), and the shares are on a lowly P/E of seven — with a 13% boost to EPS on the cards for next year, that would drop to just over six. With dividend yields of 4.1% and 4.7% added to the mix, I’m seeing a long-term buy here.

The post Two small-cap growth stocks I’d buy for the next decade appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A turning point?

Small cap Accsys Technologies (LSE: AXS) doesn’t have any problems finding customers for its super-durable acetylated timber product, Accoya. Sales have grown from just €15m in 2012 to €56.5m last year.

Accsys estimates that Accoya now accounts for 12% of the UK joinery market. It’s also sold in a number of overseas markets.

Today’s AGM trading statement makes it clear that demand remains strong. Sales rose by 20% during the five months to 31 August. There are only two problems.

The first is that production is already running at maximum capacity. Chief executive Paul Clegg admitted today that “we are working with our customers in order to minimise the impact of this temporary capacity limitation.”

The company doesn’t expect the benefit of new capacity to be available until the start of the next financial year, in April 2018. So there could be some risk of losing trade to competitors.

Struggling to break even

The second problem is that Accsys is struggling to become profitable.

Sales rose by 7% to €56.5m last year, but gross profit fell by 21% to €14.4m due to factors including higher timber costs and lower licensing revenues. As a result of this decline, the group’s pre-tax loss increased from €0.4m to €4.4m.

The group expects margins to improve over time. But today’s statement made further mention of rising materials costs and said the company was “reviewing the implementation of a price increase”. It sounds to me like customers might be quite price sensitive. So if Accoya prices rise too far above standard timber, I suspect sales could fall.

Broker forecasts suggest the company will report a full-year loss for both 2017/18 and 2018/19. The shares currently trade on 1.8x sales. That looks fully priced to me. I suspect there will be cheaper opportunities to buy over the next 18 months.

A six bagger since 2006

When chief executive Richard Cousins took charge at FTSE 100 catering firm Compass Group (LSE: CPG) in May 2006, the firm’s shares traded for 236p. Today that figure is 1,580p. That means Cousins has delivered a 570% gain for shareholders in just over 11 years.

Unfortunately, he has decided to retire next year. Compass shares dropped 2% today following the news, but the handover to new boss Dominic Blakemore should be orderly. Blakemore is already very familiar with the business, as he was appointed its chief financial officer in 2012 and is currently chief operating officer for Europe.

Buy, sell, or hold?

Cousins’ sure-handed guidance has resulted in Compass shares becoming quite expensive. The stock currently trades on 22 times forecast earnings, with a prospective dividend yield of just 2.2%. So should investors take profits?

I don’t think so. Although there’s a risk that Compass stock may underperform for a while, the group’s fundamental appeal shouldn’t change. Return on capital employed has averaged 20% since 2011, during which time the dividend has grown by an average of 9% per year.

In my view, Compass is likely to remain a profitable stock to hold. I’d see any significant falls as a buying opportunity.

The post Why I’d hold onto this FTSE 100 six-bagger for another five years appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Benchmark Holdings (LSE: BMK) describes itself as an “aquaculture biotechnology and food chain sustainability business” — fish breeding, genetic technology, and stuff like that.

After a few year of losses, Benchmark is forecast to deliver a modest profit this year which should start ramping up in 2018. Right now we’re looking at a forward 2018 P/E of around 38, but in early profit days it’s not a very useful measure — and it would actually still give us an attractive PEG of 0.5. So how is Benchmark really doing?

First-half results released Tuesday showed an increase in revenue of 69% to £69.2m, with an operating loss reduced from £15.2m in the first half last year to £6.7m.

Net debt at the interim stage stood at £12.8m, down from £14.6m, but there was a big share placing again during the period, as there was last year.

Long-term prospects

The firm is clearly gaining interest in its products and services, with a new long-term collaboration project agreed with salmon producer Salmar. And Benchmark’s newly acquired shrimp breeding operation, INVE Aquaculture, has helped it to a contract with Manit Farms of Thailand for its water quality management technology.

For the rest of the year, the company says it  should broadly meet current expectations, and reckons that a number of products coming to market between 2017 and 2019 should support its long-term growth.

Further share placings could cause issues with dilution, but if we’re really close to the turnaround phase, I reckon the 73p shares look like good value — and relatively low risk as far as lossmaking “jam tomorrow” companies go.

Wooden grow

I’m more fearful when I look at Accsys Technologies (LSE: AXS), a company specialising in the chemical preservation of wood. The firm floated on AIM as far back as 2005, and apart from a couple of years of small profits in 2008 and 2009, it’s been losses all the way.

The year ended 31 March 2017 brought in a pre-tax loss of €4.4m (from a loss of €0.5m a year previously), even though revenues rose by 7% to €56.5m. Annual losses have been relatively small and the firm’s cash pile has been depleting slowly, but a share placement in April, which raised approximately €14m, was necessary — and that has to disappoint those investors who really were expecting to see profits by now.

Time running out?

In fact, almost exactly two years ago, my colleague Peter Stephens pointed out that Accsys was “forecast to post a pre-tax profit of around £0.7m in the current year, followed by a pre-tax profit of £1.2m next year“, which put it on an attractive growth valuation at the time. Back then I’d have been bullish about it myself. But it didn’t happen, and analysts are still predicting losses to continue until at least 2019. 

Meanwhile, the share price has collapsed by 96% from an early peak of around 2,260p back in 2007, to just 78p today. I’m seeing something of a niche company, disappointing false starts, and no sign of light yet. I do wish Accsys well, but right now the shares are in bargepole territory for me.

The post One growth candidate I’d buy today, and one I’d sell appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

And, while the effects of this dispute have undoubtedly held back the company’s share price, Accsys remains confident of its long-term future in Asia, which it believes offers substantial opportunities for its Accoya wood product. Furthermore, Accsys believes that it will become cash-flow positive in the current year and is also pursuing options regarding an increase in its manufacturing facilities so as to meet increasing demand for its products.

Looking Ahead

Clearly, it is somewhat disappointing that, while Accsys has seen its loss narrow, it remains a loss-making company. However, looking ahead, this is set to change. For example, Accsys is forecast to post a pretax profit of around £0.7m in the current year, followed by a pretax profit of £1.2m next year. This puts it on a price to earnings growth (PEG) ratio of just 0.6, which indicates that its shares offer growth at a reasonable price – so long as it can meet its optimistic growth targets.

Clearly, guidance will inevitably change between now and the end of next year, but Accsys seems to be moving in the right direction and could continue to post gains after its share price has risen by 14% since the turn of the year.

Sector Peers

While Accsys does have clear long-term potential to me, it remains a relatively high-risk play due to its size, scale and the fact that it is a loss-making business. However, there are other appealing opportunities within the industrials space, with the likes of Smiths Group (LSE: SMIN) and RPC (LSE: RPC) offering good value for money.

For example, Smiths Group and RPC both trade on a price to earnings (P/E) ratios of just 14, which indicates good value for money while the FTSE 100 has a P/E ratio of around 16. And, with the two companies yielding 3.6% and 2.7% respectively, they offer an appealing level of income compared to the lack of dividends at Accsys. Furthermore, while Smiths Group may be expected to post flat earnings over the next two years, RPC’s double-digit growth forecasts indicate that the stock could be a strong performer.

As such, all three stocks appear to have their merits. While Accsys has the potential to see investor sentiment rise as it transitions from a loss-making entity to a profitable one, it could be prudent to pair it up with a good value, income-producing stock such as Smiths Group. And, for investors seeking a halfway house, RPC appears to be the logical choice due to its above average growth rate, decent yield and low valuation. As such, all three stocks appear to be worth buying, with a mix of the three seeming to be the best way forward for Foolish investors.

The post Is Accsys Technologies PLC A Better Buy Than Smiths Group plc And RPC Group plc? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended RPC Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.