Midway looking good at midpoint
Midway Limited (ASX:MWY) Australia’s largest woodchip processor and exporter has delivered a strong interim result the first half of fiscal 2019.
This resulted in the company’s shares increasing 8% to an all-time high of $3.68 on Monday.
There was a significant uptick in underlying EBITDA, increasing 87.7% to $12.2 million, exceeding the top end of management’s guidance which was in a range between $11 million and $12 million.
Sales growth was also robust, surging 45.8% to $124.2 million.
As a backdrop, Midway has majority shareholdings in South West Fibre, Queensland Commodity Exports (Brisbane), Plantation Management Partners (Melville Island) and Softwood Logging Services (Bunbury, Western Australia).
The group’s diversified sources of supply are beneficial in terms of having multiple revenue streams and insulation against one-off factors such as extreme weather conditions that may impact certain locations.
Midway is primarily involved in the production, processing and export of high quality wood fibre to producers of pulp, paper and associated products in the Asian region.
Higher export prices contributed to the strong result, and Midway also benefited from exchange rate movements.
Management said that the strong operating performances that underpinned the group’s first half result are expected to continue throughout the remainder of fiscal 2019, positioning the company to deliver on ‘current analyst consensus.’
Analysts at Morgans noted that the group’s interim profit was ahead of its expectations, and taking into account the positive outlook, the broker increased its full-year earnings per share forecasts by 3.2%.
Earnings per share projections were also upgraded marginally in fiscal year’s 2020 and 2021.
Taking into account the revised metrics, Morgans increased its price target from $3.75 to $3.90, suggesting there could be more upside for Midway.
The following details the various options open to the company in terms of sustaining its growth momentum.
Acquisitions to provide momentum in 2020
Midway acquired Softwood Logging Services in October 2018, a harvest and haul business in Western Australia.
SLS provides Midway with access to equipment, management expertise and contracts for the harvesting and delivery of biomass and other forest products in the south-western region of Western Australia.
In the same month the company acquired 40% of Bio Growth Partners, a biomass procurement and marketing business which supplies woodfibre to the Western Australian biomass market.
Management noted that integration of the new acquisitions was well underway with some teething problems being addressed to ensure full benefits are realised in fiscal 2020.
Consequently, a full year contribution from these businesses should have a significant impact in fiscal 2020.
When the experts at Next Investors have a stock pick, it may pay to listen.
The Next Investors have been investing in ASX small cap stocks for years, with their best small cap picks yielding returns of 1,200%, 1,120%, 900% and 678%.
They have just revealed their hand-picked, FY2021 stock portfolio of high conviction long-term investments.
Click the link below to see what they are currently investing in.
S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.
Conflict of Interest Notice
S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.
The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.