Thread by @DownunderValue

Midway $MWY $MWY.AX closes it's negotiations with the Japanese and Chinese, surely today's most anticipated #ASX announcement 😉

Let's have a quick look at how our investment thesis is unfolding 👇

There was a recent announcement by Midway on their FY20 results, confirming for me that essentially the bottom of the cycle has passed.

I won't go through it again, but check out that analysis and my initial deep dive here👇

Midway this morning has released it’s Japanese and Chinese price negotiations, with increases of ~8% for FY22 on increasing volumes.

This is a 'return to normal' but not 'peak cycle' prices - to be honest, was hoping for a bit more, but the big shift still expected in FY22+

To put a bit of perspective around it, we're returning in 2021-22 back to the good ol' days of 2018-19 prior to the Covid crisis that gutted volume and prices.

Export prices essentially have two impacts. First is the direct impact on revenue and earnings.

Somewhere around ~30% will be consumed by increased contractor prices, resulting in around 70% hitting the bottom line. That is $20m rev's and $14m NPAT, akin to FY18&19 margins.

Way back when, Midway was paying dividends of 18c per share in FY18 / FY19 at export prices of ~US$180 with lower volumes.

Share price was also significantly higher, and there has been no dilution since.

The second impact of export prices is on biological asset values, representing ~70% of NAV.

We have not received an update on future export prices used in calculating their assets (orange line), though it will be higher than FY20.

Because of increasing ownership of plantations (less reliance on contracted suppliers), the sensitivity to 10% price change has increased from $2.5m in FY18 to $12m in FY21.

So an +8% export price should be around $10m NAV (I previously estimated $9m).

I still believe that the current EV of $125m is a ~10% discount to the NAV, and with increasing agricultural land values and increasing export prices, we *should* see NAV increasing and the discount decreasing 🤞

Though this is an unloved illiquid micro cap, so... 🤷

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A deep dive per week is my commitment to FinTwit.

Questions and feedback always welcome. DYOR.

Disclaimer, I'm long MWY.

Super illiquid stock - so this sort of stuff happens on the slightest good news (like it did last year on bad news in reverse)

But there's simply no volume or depth. Currently, around 8x buyers vs sellers.

I know I know, don't get excited on daily movements.. BUT this is fundamentally the earnings forecast for next 12 months. So, something to get excited about 😉