Midwich's valuation remains enticing

Spending on audiovisual (AV) products is cyclical, and so the demand environment for displays is a challenging one during a time of rising interest rates and constrained budgets. This dynamic was seen in Midwich’s (MIDW) results. The Aim-traded AV supplier pointed to delayed spending by corporate and education clients as a driver of the 2 per cent fall in revenues in the UK and Ireland, its second biggest market.   

But the recovery of demand for higher-margin live event and entertainment products offset this. This was seen in the 10 per cent rise in revenues in Europe, the Middle East, and Africa (EMEA), where the company pointed to “exceptional growth in Southern Europe and the Middle East”. In North America, the acquisition in June of specialist distributor SF Marketing helped revenues up by almost a quarter. 

The company’s strategic move into specialist product areas such as technical video, audio, and lighting, which continues at a steady pace, helped profitability. The gross margin came in at 16.3 per cent, 140 basis points up on last year.

And Midwich isn’t resting on its laurels. The company picked up five businesses after the period end for £18mn, backed up by a £50mn equity placing in June, after the SF Marketing purchase took it into Canada for the first time. There is more in the pipeline. 

Managing director Stephen Fenby told Investors’ Chronicle that “adding new technical skillsets or expanding into new geographies” were the strategic rationales behind the acquisitions. 

In June, we highlighted the “extreme” valuation discount on offer here. The downwards movement in the share price (impacted by nervy sentiment towards distributors) since then looks overdone, and the rating is very undemanding for a well-placed company with attractive long-term growth prospects. The shares trade on 10 times forward earnings, according to FactSet, compared to a five-year average of 18 times. Buy. 

Last IC View: Buy, 447p, 8 Jun 2023