Next Investors logo grey

Morgans CIMB initiates coverage of woodchip group, Midway

Published 11-JAN-2017 11:40 A.M.


2 minute read

Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.

In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.

The below articles were written under our previous business model. We have kept these articles online here for your reference.

Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.

Click Here to View Latest Articles

Since listing on the ASX in early December the share price of Midway (ASX: MWY) has mainly traded at a slight discount to its IPO price of $2.50. However, analysts at Morgans CIMB see value in the group and it has initiated coverage with an add recommendation and price target of $3.00.

Before we go further it should be noted that broker projections and price targets are only estimates and may not be met. Also, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

By way of background, Midway is one of Australia’s largest producers of woodchips and a leading company in the Australian forestry sector, primarily involved in the production and export of high quality wood fibre to producers of pulp, paper and associated products in China and Japan.

Looking across the group’s operations, its primary source of income is derived from producing hardwood and softwood woodchips from logs acquired, mostly from private plantation owners in Victoria, South Australia, New South Wales and Queensland.

Midway then export’s woodchips from facilities in the ports of Geelong, Portland and Brisbane to producers of pulp, paper and associated products in China and Japan.

The contraction in the Australian dollar has assisted Midway, and this is a variable worth watching as it can have a significant impact on earnings. The company has factored in an AUD/USD rate of 75 cents into its earnings projections for fiscal 2017, indicating the potential for outperformance at current levels of circa 73.5 cents.

Assessing the promise of Midway’s business model, Belinda Moore from Morgans said, “Midway’s competitive advantage is its vertically integrated business model and ownership of strategic assets along the supply chain which create barriers to entry”.

She went on to say that the group is undervalued trading on a fiscal 2017 PE multiple of 11.1 based on its current trading range of $2.47

Moore anticipates that the group will generate strong free cash flow which will underpin an attractive dividend yield. On this note, the broker’s forecasts point to a dividend of 18 cents in fiscal 2017 increasing to 20 cents in fiscal 2018. This implies yields of 7.2% and 8.2% respectively.

Assessing the group’s potential to pay robust dividends, the company owns freehold plantation land of approximately 16,000 hectares with a book value of $68.3 million as at June 30, 2016.

With management flagging its intention to potentially sell-off some of these assets to buyers that could generate high-value returns for different uses, substantial gains against book value could be realised.

Similarities could be drawn with the likes of Boral which sells sites such as quarries to the likes of land developers once they become nonviable as a source of building material products.

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (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 and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.