Midwich (MIDW:AIM) 456p

Gain to date: 1.3%

We highlighted specialist distributer of AV (audio visual) equipment to the trade market Midwich (MIDW:AIM) as an opportunity to buy above-average growth at a below-average price on 23 March.

The shares are showing a small gain since we said to buy, but in general have drifted sideways while consensus earnings estimates have remained steady.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

An integral part of the company’s growth strategy is to augment organic expansion by acquiring two to four companies a year as it builds out new geographies and technologies.

The company announced its first entry in the Canadian market on 6 June after buying SF Marketing in a deal worth up to £27 million and simultaneously raised £51 million in fresh capital to part-fund the acquisition and pay down debt.

SF Marketing is a leading Canadian value-add distributer of AV equipment with an estimated market share of 20% to 25% and a reputation for technical services. The region is estimated to be worth around $9 billion and expected to grow in mid-single digits.

Midwich is guiding for the acquisition to be earnings accretive in the first year of ownership. Berenberg upgraded its 2023 and 2024 earnings estimates by 1% and 3% respectively following the announcement of the deal.

Management said it has identified a near-term pipeline of at least six acquisition opportunities likely to be executed over the next six months.

Research group Megabuyte said the SF Marketing purchase is ‘textbook’ Midwich as it captures a new market, bolters a capability area, in this case professional audio and live events, and adds a decent new customer roster to push more developed offerings.

WHAT SHOULD INVESTORS DO NOW?

The company continues to demonstrate good progress against its growth ambitions. With an estimated 3% to 4% market share of an addressable market worth $33 billion, there is plenty of runway ahead.

The shares are a bargain, trading on 11.6 times forward earnings. Berenberg estimates the shares trade at a 35% discount to their historical average. Keep buying.

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