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Midwich shares hit despite good results

The group posted yet more double-digit growth, but investors seem to have been expecting more
September 11, 2018

Tech group Midwich (MIDW) has enjoyed a stonking run since it first listed in May 2016. From their 208p IPO price, the shares have more than tripled in value, breaking through the 700p mark at their peak in July this year. However, strong performances breed high expectations, and shareholders punished the group following the release of a broadly positive set of half-year results, sending the shares down as much as 6 per cent in early trading.

IC TIP: Hold at 660p

But the audiovisual distributor once again clocked up double-digit growth across the board. Statutory earnings figures were flattered by acquisitions, but even on an adjusted basis EPS was up 23 per cent. Analyst Investec estimated nine percentage points of the group's 24 per cent constant-currency revenue growth was organic, with the rest made up by acquisitions.

The only real red flag was the operating cash inflow, which dipped to £200,000 from £3.5m in the prior period. Management attributed the drop to working capital investments and expects the average cash conversion rate to remain within the target range of 70 to 80 per cent. Net debt was up, but the group intends to continue its buy-and-build strategy. After the period end, management announced two further acquisitions, snapping up a German video and broadcast equipment manufacturer and a French Audio distributor.

Investec is forecasting adjusted pre-tax profit of £28.4m, giving EPS of 27.2p in 2018 (from £24.3m and 23.8p in 2017).

MIDWICH (MIDW)   
ORD PRICE:660pMARKET VALUE:£524m
TOUCH:650-665p12-MONTH HIGH:710pLOW: 380p
DIVIDEND YIELD:1.4%PE RATIO:36
NET ASSET VALUE:69p*NET DEBT:76%
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20172128.07.044.17
201826411.911.34.60
% change+25+48+61+10
Ex-div:20 Sep   
Payment:26 Oct   
*Includes intangible assets of £29.8m, or 38p a share