ASX aspirant Midway has been valued at as much as $253 million by sponsor broker Ord Minnett, according to pre-marketing research sent to fund managers this week.
Ords, which is a joint lead manager on the deal alongside Morgans, has placed an equity valuation range on the country's largest high-quality woodchip processor and exporter woodchip of between $216 million and $253 million.
This represents a 2016 financial year enterprise value to earnings before interest, tax, depreciation and amortisation multiple of 7.1 times to 8.2 times, or 5.9 times to 6.8 times if asset sales are adjusted for.
Midway exports to seven of the biggest pulp and paper producers in Japan and China, and "China is expected to become the largest importer of hardwood chips in FY17 and has experienced high growth [it only became a net importer in FY06]", Ords analyst Heath Andrews wrote in the research note.
Andrews also notes industry expert RISI is predicting supply to be 4 per cent below demand in FY20 and 10 per cent in FY25.
"Higher pricing [in USD] would be required to encourage additional woodchip supply to balance the market, a positive for Midway," he adds.
FY16 proforma EBITDA of $33 million is up 68 per cent compared to FY15, while Midway has guided to a 70 per cent to 90 per cent payout ratio.
Former Australian Bluegum Plantations boss and ex-Rio Tinto executive Tony Price will oversee the company as chief executive officer, while the McCormack's Greg McCormack lines up as chairman.
Current Midway shareholders plan to hold an estimated 65 per cent to 75 per cent of their current shareholding post the IPO. The team has spent the last week in Asia meeting prospective investors and will hit Sydney and Melbourne in coming weeks.
"Average years' service for management is an impressive 15 years, including an experienced new MD," Andrews notes.
Key risks to his valuation are that in the event of a global economic slowdown, demand for paper related products (and by extension woodchips) is likely to fall; timber supply in Australia could begin to decline from FY25; and pricing of woodchips in Australian dollar terms could fall, "particularly with low priced pulp available from South America or an increasing A$-US$ exchange rate."
The company is expected to lodge a prospectus in the middle of next month, provided it gets a good hearing from potential investors. If successful, it would list in June.
