The distraction of an IPO can cause management to take their eyes off the ball; so it’s good to see Midwich deliver a strong set of results after coming to AIM last May. GCI doesn’t often recommend investing soon after an IPO; but Midwich (AIM: MIDW) is an established company with a strong track record and it’s pleasing to see the shares up by around 30 per cent since our tip in October.
The company is a specialist distributor to the trade of audio visual equipment like digital projectors, large format displays, and smart boards. Technology keeps moving forward and end-users are increasingly adopting AV products. Midwich provides a lot of technical support and value-added services, which has allowed it to increase margins in each of the last ten years. Last year saw the gross margin rise another 40 basis points to 15.3 per cent.
Revenue was up 17.8 per cent, which drove an earnings increase of 19.5 per cent. Two thirds of sales come from the UK and Ireland and these grew organically by 6 per cent with a further boost coming from acquisitions. Overseas territories grew at stronger rates with Australia the stand-out, up 34 per cent in local currency terms. France was up 30 per cent and Germany 18 per cent in euros. As the company expands it can introduce its range of product supplier relationships into new territories and broaden the product offering in those countries.
Midwich is cash generative and offers a nice mix of organic growth supplemented by acquisitions. There’s a healthy pipeline of deals, with the company looking for good businesses where the management will stay on board and use the benefits of Midwich’s scale to grow their operations. The shares still look decent value on a current year p/e of 17.7 and yield of 3.3 per cent.