Midway looking good at midpoint

By Trevor Hoey. Published at Feb 26, 2019, in Trev's Stock Tips

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.

Midway has several ways in which it can sustain its growth.

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.

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