Specialist distributor of AV (audio visual) equipment to the trade market Midwich (MIDW:AIM) has established a strong track record of growth since coming to the stock market in 2016.

Although there are added risks to consider when investing in smaller companies, we believe Midwich is a great opportunity to buy above average growth at a below average price.

Sales and adjusted operating profit have grown at a compound annual growth rate (CAGR) of 22% and 19% respectively, outperforming the wider AV market.

The global AV market is worth £219.2 billion and expected to grow at a CAGR of 5.9% a year over the five years to 2027 according to Avixa, the trade association for the professional AV market.

Midwich has historically grown faster than the market and in 2022 delivered 20% organic growth compared with just over 10% for the market.

The company’s strategy is to augment organic growth by acquiring two to four companies a year as it builds out new geographies and technologies.

Including acquisitions, revenue grew 41% in 2022 and the company said it has a healthy pipeline of acquisition targets. Post year end the company increased the size of its revolving banking facilities to £175 million from £80 million to support delivery of the pipeline.

Management estimates the company’s total addressable market is 15% of the total AV market implying a market share between 3% and 4% and hinting at a significant growth opportunity.

An experienced management team, strong customer relationships and an increasing focus on higher valued-added products are key competitive advantages which should support sustainable growth.

Midwich is a B2B (business to business) specialist working with over 600 vendors including blue chip makers such as Samsung, Sony, Logiteck, and Philips. It supports a comprehensive range of audio visual products including displays, projectors, technical, broadcast, lighting, audio, and unified communications.

It operates as the sole or largest in-country distributor for many of its vendors in their respective product sets. The firm has a diverse base of over 200,000 customers many of which are professional AV integrators and IT resellers such as Softcat (SCT) and Computacenter (CCC) servicing corporate (30% of sales), education (30% of sales), retail, residential and hospitality sectors.

Most of its products are used by commercial and educational establishments rather than consumers. The company’s depth of expertise and close contact with its clients keeps it at the forefront of market and technological developments.

Despite all these attractions the shares trade on just 12 times forecast earnings and offer a solid yield of around 4%.

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