Midwich's specialist strategy is paying off

Midwich’s (MIDW) long-term strategy to focus on high-growth and high-margin opportunities in more specialist areas such as security and telecoms is bearing fruit – technical products took more than half of total sales and specialist product sales were up by 86 per cent in the half. The audio visual (AV) hardware supplier pushed up the dividend by more than a third after revenue and profits surged on the back of solid organic growth and the contribution of two UK acquisitions.

Managing director Stephen Fenby told Investors’ Chronicle that Nimans and DVS – which gives the company access to the video security market for the first time – are “very pleasing acquisitions, which are settling in well” but that this shouldn’t detract from underlying growth.

This is fair enough, given organic revenue was up by a market-beating 28 per cent. And double-digit revenue growth was posted across all geographies. While the company's UK and Ireland and EMEA markets took over 85 per cent of the top line, there was also a noticeable sales uplift in the world’s biggest AV market. Revenue almost doubled in North America to £56mn, with the company’s specialist focus driving progress, and Fenby thinks there are significant future growth opportunities for Midwich across the Atlantic.

Gross margin was down slightly, falling by 20 basis points to 14.9 per cent. But this was due to the company’s “strict” policies on aged inventory rather than anything more malign.

Berenberg analysts said that Midwich “is best positioned to capitalise on manufacturers’ needs for high-quality specialist distributors” and “evidence of execution on its long-term strategy is undeniable”. The shares trade on 14 times the broker’s 2024 earnings forecast, which looks undemanding given its prospects. We’re still bullish. Buy.

Last IC View: Buy, 494p, 8 Mar 2022