Midway Limited

Robust Growth in Statutory NPAT: Midway Limited (ASX: MWY) is into the production and exploration of hardwood and softwood woodchips. The market capitalisation of the company stood at ~A$303.7 Mn as on 19^th Aug 2019. Recently, the company with the help of a release dated 8^th August 2019 announced that it will be releasing its full year results for FY19 on 28^th Aug 2019. In another update, the company announced that Regal Funds Management Pty Ltd has become an initial substantial holder in the company with the voting power of 8.03% on 18^th June 2019. The company further stated that Anthony Bennett has made a change to his holdings by disposing of 40,000 Shares. The director sold 17,180 shares at $3.48 per share, 20,000 shares at $3.50 per share and 2,820 shares at $3.52 per share. It was also added that the shares have been sold between 6 and 13 June 2019. The sales revenue of the company stood at A$124.2 Mn in 1H FY19 as compared to A$85.2 Mn in 1H FY18, reflecting a rise of 45.8%. The company posted a statutory net profit after tax amounting to A$ 14.3 Mn in 1H FY19 in comparison to A$ 2.7 Mn, which represents a robust rise of 429.6% on pcp. The following picture provides an overview of the long history of export growth:


Export Growth (Source: Company Reports)

What to Expect: With respect to the expansion of existing business, it is planning growth of plantation management and wood-fibre export businesses as well as development of hardwood and softwood log exports. It is also planning increased utilisation and expansion of existing infrastructure. The operating efficiencies of the company include economies of scale, margin expansion and cost management. The company has secured biomass customers in WA and Japan.

Stock Recommendation: The company reported gross margin, EBITDA margin and operating margin of 41.0%, 8.1% and 18.6% in 1H FY19, reflecting YoY growth of 2.7%, 1.8% and 14.6%, respectively. The net margin of the company stood at 11.5% in 1H FY19 with YoY growth of 8.4%. This implies that the company has improved its capability to convert its top-line into the bottom-line.

With respect to the stock’s past performance, it produced returns of -0.57% and -1.69% in the time period of one month and three months, respectively. Considering the above stated facts, we advise the investors to closely watch the stock at the current market price of A$3.420 per share (down 1.724% on 19^th Aug 2019), ahead of its full-year results which are to be released on 28 August 2019.

Pact Group Holdings Ltd

Retirement of Director: Pact Group Holdings Ltd (ASX: PGH) is a manufacturer of rigid plastics packaging, metals packaging and related products. The market capitalisation of the company stood at ~A$763.67 Mn as on 19^th August 2019. Recently, the company via a release announced that Investors Mutual Limited has made a change to its substantial holdings in the company and its current voting power stood at 11.85% as compared to the previous voting power of 10.56%, effective from 14^th August 2019. In another update, the company announced that Mr Peter Margin has been retired from the Board of Directors. The company further stated that Mr Peter Margin started his position as a Director of the company’s Board on 26 November 2013 and has been the Chairman of the Audit, Business Risk and Compliance Committee as well as a member of the Nomination and Remuneration Committee.

Recently, the company has published its full year 2019 result presentation wherein it witnessed lower resin costs and improved pricing in the 2H, partly recovering adverse lags from the previous periods.It posted a net profit after tax amounting to $77 Mn in FY19 against $95 Mn in FY18. When it comes to cash management, the company has maintained strong operating cashflow with cash conversion of 88% despite the adverse impact from higher resin purchases following the change to an import supply model for resin supply into Australia.  


Financial Results (Source: Company Reports)

Future Aspects: The company stated that further plant closures and offshoring opportunities would be progressed in FY20. The company is anticipating cash spend in the range of $20 Mn-30 Mn and incremental EBITDA benefits of around $10 Mn in FY 2020.

Stock Recommendation: The company stated that it has witnessed improved gearing in 2H FY19. It added that the debt amounting to $380 Mn has been extended to January 2022, which decreases the near-term refinancing risk. As per the ASX, the stock is trading closer to its 52-week lower levels of $2.080 and, thus, it can be said that the stock is offering a decent opportunity for accumulation. Hence, considering the above-stated facts and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of A$2.300 per share (up 3.604% on 19^th August 2019).  

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