OTCQX:AGXXF - Post by User
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anon314on Aug 11, 2014 6:11am
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CG Investment Report: Q2 Preview
CG Investment Report: Q2 PreviewFrom Keith Carpenter of Canaccord Genuity
Investment recommendation
The legacy business has not only returned to a stable profitability level, we believe it will add to the growth profile of the company through our forecast period. However, the significant growth that we expect from AGT will likely come from the build-out of the food ingredient business, a business that we estimate is already providing greater than twice the margin to that of the legacy business. We anticipate the announcement of the third line expansion (35ktpa) at its Minot, North Dakota, food ingredients facility is imminent and will occur during this quarter. As well, AGT has 200kt of spare capacity within its legacy business that it will look to upgrade for the expansion into the food ingredient business, providing the company with a high margin growth profile off of a low capital cost. We believe that next stage of expansion will begin in H1/15. We estimate that, by 2018, we could see a run rate of C$116M in annualized EBITDA, which would be 93% higher than the C$60M in EBITDA AGT realized in 2013. Also, the Ingredion partnership could result in significant expansion opportunities beyond the potential we’ve highlighted through 2018. We expect this strong earnings growth momentum to expand AGT’s multiple going forward.
Investment highlights
AGT is scheduled to release Q2/14 earnings before market open on Wednesday, August 13. We forecast Q2 EBITDA of C$18.2M versus consensus of C$18M. We anticipate continued growth in margins per tonne from the legacy business, larger earnings from the trading and distribution segment and an imminent announcement on the third-line expansion at their Minot food ingredients plant.
Valuation
We continue to rate the shares of AGT a BUY and have increased our target price to C$26.00 (from C$23.50 previously) based upon an 8.5x multiple to our blended 2015E/2016E EBITDA. As AGT is our preferred small-cap equity, we are adding AGT to Canaccord Genuity’s Canadian Focus List.