AGT Food and Ingredients Inc.
Food Ingredient Demand; 2Q15 Review
What's Changed
AGT reported Q2/15 EBITDA of $22.2 MM, slightly below our
estimate of $24.6 MM and consensus of $24.9 MM, due to lowerthan-
expected legacy business volumes (lentils). AGT's Q2
EBITDA/mt rose 22% year over year to $67.92/mt as food
ingredients and packaged food margin improved 19% Y/Y.
Implications
Production at Minot Third Line Commenced in Q2/15 - AGT expects
to ramp up production at the third line in 2H15, bringing total
capacity of the Minot Facility to 105,000 mt. The third line has been
running at around 60% in Q2, ahead of AGT expectations. AGT also
was more successful in moving starch product to the feed market.
Current split between feed and human food applications is
75%/25%, and AGT expects this to change to 50%/50% in 2016.
The company is currently in the process of adding the deflavouring
and sterilization line (proprietary technology), which is expected to
be completed by end of 2015 (deflavouring line helps reduce the
sharp taste of lentil protein). The deflavouring/sterilization line
capacity is expected to be 50,000 mt, with half of the current
production from the first three lines expected to be upgraded
through the modification line. Deflavouring will help pulse protein
flour to be used in bakery products, extruded snacks, crackers, etc.
Lines 4 and 5 at Minot? - AGT believes it will need to build lines four
and five in late 2016-2017, which is expected to increase plant
capacity to 175,000 mt (we have not included the build of lines 4
and 5 in our estimates).
Valuation
We lower our 2015 EBITDA estimate as we actualize Q2 results, and
lower Pulses and Grain Processing segment earnings in Q3 on the
back of lower lentil supplies in Canada. Our 2015 EBITDA estimate
declines from $96.7 million to $93.6 million. We slightly tweaked
2016 estimates and our 2016 EBITDA estimate stays mostly
unchanged at $121.6 million. We continue to maintain our $33 PT
and SO rating.