Midwich Set to Thrive on Growing Audiovisual Market

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  • Reported its dividend
  • Improved gross margin after last year’s drop

Environment (MIDW) is a company that sells audiovisual (AV) products, so you would think Covid-19 has been terrible for their business given that live music events have been put on ice. While it hasn’t been helpful, its two biggest end-user markets are education and business, both of which have held up well over the past 18 months. In fact, hybrid work could even be a boon to the AV market, with many offices needing new cameras and screens to accommodate their home workers during morning meetings.

Its revenue was slightly affected in 2020, dropping 4% in the first half of the year, but rebounded in 2021. Revenue increased 29%, while gross margin rose 35% to £ 59.1million . This growth was even more impressive given that Midwich faced headwinds after abandoning its low-margin North American business. The pullback helped it increase its gross profit margin by 60 basis points to 15.1 percent.

Before the pandemic, this same margin was just over 16% and management has the ambition to return to it. One obstacle to this ambition is that “product shortages have created operational and logistical problems for customers” and will have a “moderating effect on revenues”. The company does not expect this to affect the company’s long-term growth path, although it did affect the cash conversion for the period. The operating cash conversion fell to 31 percent from 127 percent last year as the company had to increase inventory to protect itself from supply shortages – likely a temporary effect.

Management is not disturbed by the shortages as order books continue to strengthen and, with the exception of any further blockages, which seems unlikely at this point, the AV market is expected to grow next year. According to a study published by the professional body AVIXA in June 2021, the market is expected to grow by 8.4% in 2021 and then at a compound annual rate of 7.2% over the next five years.

Panmure Gordon has raised its EPS forecast for 2021 by 19.2 percent. the PE 2022 ratio would drop to around 18. The audiovisual market will grow as distance working and learning becomes more popular and product shortages could easily be a transitory problem, making a margin of 16.5% a real possibility. To buy.

Last seen IC: Hold, 429p, Sep 8, 2020

MIDWICH (MIDW)
ORDER PRICE: 610p MARKET VALUE: £ 538 million
TO TOUCH: 592-614p UP TO 12 MONTHS: 630p LOW: 303p
DIVIDEND RETURN: 0.5% P / E RATIO: 162
NET ASSET VALUE: 113p NET DEBT: 67%
Semester on June 30 Turnover (£ m) Profit before tax (£ m) Earnings per share (p) Dividend per share (p)
2020 302 -2.52 -3.29 nothing
2021 390 7.09 4.79 3.30
% cash +29
Ex-div: 25 october
Payment: Sep 16
* Includes intangible assets of £ 75.8million, or 86p per share. NB: Special dividend of 3.00 pence per share also paid in July 2021.


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