Canaccord downgrades Midwich to 'hold' but praises 'excellent growth prospects'

Analysts from Canaccord Genuity on Monday downgraded their rating of Midwich Group from ‘Buy’ to ‘Hold’ as they expect the firm’s share price to trade around current levels over the near-term, following a strong recent performance.

Nevertheless, the Canadian broker raised its target price for the firm's shares from 660p to 707p on the back of expectations for fatter margins.

Those same margins also translated into improved earnings forecasts from Canaccord analysts, who raised their FY 2018 gross margin assumption from 15.7% to 16%.

The Canaccord analysts explained: “The company’s growth prospects remain excellent, in our view, reflecting underlying growth in professional audio visual (AV) markets, the likelihood of further market share gains and excellent acquisition potential given the fragmented nature of AV markets.”

Midwich is an international group of AV, professional video, broadcast, lighting and document distribution firms that attempt to combine talent and technology to provide advice and support to a diverse customer base.

The AIM-traded company’s full-year cash generation was expected to be in-line with its long-term performance, despite falling slightly during the first half of the year.

Analysts also projected Midwich’s dividend per share to rise 7% to 14.7p in 2018, before a further 4% jump to 15.3p in 2019.

“Midwich has continued to achieve excellent growth in the first half of 2018, supported by three acquisitions made in 2017 (Sound Technology in the UK, Earpro in Spain and van Domburg in The Netherlands). Gross margins have increased yet again, partly reflecting higher gross margins from last year’s acquisitions,” the broker said.

Midwich Group’s shares were up 3.82% at 670.00p at 1055 BST.