OTCQX:AGXXF - Post Discussion
Post by
retiredcf on Mar 24, 2016 8:22am
CIBC
AGT Food and Ingredients
Inc.
Firing On All Cylinders - Increasing PT To $45
What's Changed
We raise our price target from $39 to $45 as we increase AGT estimates (due to expected stronger legacy volumes and further expansion at Minot) and increase our EV/EBITDA multiple from 9.0x to 10.0x (with food ingredients and deflavouring line ramp there is an increased probability that AGT could be a take-out target). However, we do caution that AGT's risk profile has also increased given higher net debt levels as a result of recent acquisitions and capital improvements. We continue to maintain our Sector Outperformer rating.
Implications
2016 is expected to be another solid year for Canadian lentils industry. AGT estimates that lentils and peas planting area is expected to exceed 10 million acres in 2016. Leftfield forecasts lentils acreage to increase 24% in 2016 to 4.9 million acres year over year. Applying a five-year average yield, this acreage would yield a crop of 3.2 Mt of lentils, an 850,000 tonne increase Y/Y. Given low existing supplies, 2016/17 shipping program is expected to be extremely strong. Leftfield forecasts stocks-to-use to remain around 5% in 2016/17, despite strong lentil production.
While we expect supply constraints to impact AGT's sales volumes in Q2/16, we forecast AGT's legacy sales volumes to grow 16% year over year, driven by a large Canadian crop and higher bulk sales volumes as a result of acquisition of bulk loading facilities in West Central Saskatchewan (WCRR) and rail logistics assets in Western Canada.
The announced expansions at the Food Ingredients Platform will allow AGT to increase its human food ingredients production without reducing pet food production. Currently, the split between pet food and human food is 80%/20%; however, we expect sales mix to shift towards more human food ingredients, which should help to drive food ingredients platform margins higher
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