TD raises to 53 from 49Recommendation: BUY
Risk: HIGH
12-Month Target Price: C$53.00
Prior: C$49.00
12-Month Dividend (Est.): C$0.60
12-Month Total Return: 37.4
Event AGI reported Q3/22 adjusted EBITDA that was ~19% above consensus. Results were supported by higher-than-expected revenues and margins. Management increased its 2022 adjusted EBITDA guidance to "at least $228mm" (vs. "at least $215mm" previously), which compares with consensus of $219.9mm. Impact: POSITIVE Q3/22 adjusted EBITDA was $76.3mm vs. consensus/TD at $64.4mm/$66.6mm. Adjusted EPS was $1.41 vs. consensus/TD at $1.11/$1.28. Adjusted EBITDA margin was 19.0% (+420bps y/y) vs. consensus and TD, both at 16.6%. Revenue was $402.1mm (quarterly record; +28% y/y), above consensus of $387.9mm, but in line with our $401.9mm estimate. Revenue growth was broad-based, with all of AGI's reporting segments and geographies realizing healthy y/y growth. Consolidated backlog growth was +4% y/y (dollar value not provided). AGI's total net leverage ratio declined to 4.1x (vs. 4.8x in Q2/22). Guidance/Outlook Commentary: AGI characterized its pipelines as robust, and noted that the company continued to see strong interest from customers across all segments and regions. AGI's revised guidance implies Q4/22 adjusted EBITDA of at least $44.3mm, which compares with consensus Q4/22 adjusted EBITDA of $48.1mm. However, we note that AGI increased its adjusted EBITDA guidance in each of the last two quarters, and as such, we believe that there may be some conservatism in AGI's implied Q4/22 guidance. We have raised our 2022 adjusted EBITDA forecast (driven primarily by the Q3/22 beat), while our 2023/2024 adjusted EBITDA estimates have also increased slightly. Our EPS estimates decline slightly due to higher forecast interest costs. Our target price has increased to $53.00 (from $49.00), driven by our slightly higher adjusted EBITDA estimates and a small increase in our target valuation multiple to reflect our increased confidence in AGI's outlook. TD Investment Conclusion Current global agriculture fundamentals are positive and supportive of AGI's nearto medium-term outlook, in our view, and we are attracted to the company-specific revenue growth and margin improvement opportunities that AGI offers. Meanwhile, we view AGI's valuation as attractive. We reiterate our BUY rating.
Details Q3/22 adjusted EBITDA was $76.3mm (quarterly record) vs. consensus of $64.4mm and TD at $66.6mm. Adjusted EPS was $1.41 vs. consensus/TD at $1.11/$1.28. Adjusted EBITDA margin was 19.0% (+420bps y/y) vs. consensus and TD, both at 16.6%. Relative to our forecasts, margin outperformance was driven by strong Commercial segment margins of 17.8% (vs. TD at 14.0%) and Farm segment margins of 26.3% (vs. TD at 24.0%), partly offset by Digital margins of -34.2% (vs. TD at -9.0%). Revenue was $402.1mm (quarterly record; +28% y/y), above consensus of $387.9mm, but in line with our $401.9mm estimate. Revenue growth was broadbased, with all of AGI’s reporting segments and geographies realizing healthy y/y growth. Geographically, International and U.S. generated particularly strong y/y growth (+44% and +27%, respectively); while Canada was +12% y/y. Regarding AGI’s segments, y/y growth was: Commercial +40%; Farm +20%; and Digital +9%. Cash flow from operations (turned positive in Q3/22 following two negative quarters) was +$58.2mm (vs. +$23.8mm in Q3/21).
Outlook Outlook Commentary: AGI characterized its pipelines as robust, and noted that the company continued to see strong interest from customers across all segments and regions. As such, AGI now expects full year 2022 adjusted EBITDA of “at least $228mm”, driven primarily by organic growth. AGI’s guidance implies Q4/22 adjusted EBITDA of at least $44.3mm, which compares with pre-quarter consensus Q4/22 adjusted EBITDA of $48.1mm. However, we note that AGI increased its adjusted EBITDA guidance in each of the last two quarters, and as such, we believe that there may be some conservatism in AGI’s implied Q4/22 guidance. AGI indicated that it is positioned to realize another record year in sales and adjusted EBITDA in 2022, with good momentum heading into 2023. Management is “highly confident” in its ability to grow adjusted EBITDA y/y and expand margins in 2023 (note: our forecast is more conservative, as although we are calling for higher y/y adjusted EBITDA in 2023, we are modelling broadly flat y/y margins). Backlog Update: Consolidated backlog growth was +4% y/y (dollar value not provided). Management noted seeing a strong pipeline and quoting activity. Leverage/Capital Allocation: AGI’s total net leverage ratio declined to 4.1x (vs. 4.8x in Q2/22). On the Q3/22 conference call, management indicated that it expects AGI’s leverage ratio to continue to move lower going forward, likely winding up around the low3x level by YE2023. Upon reaching this level, AGI indicated that it would re-evaluate its capital-allocation priorities. Updated Estimates: We have made minor adjustments to our forecasts. Our higher 2022 adjusted EBITDA forecast reflects the Q3/22 beat, while we have also slightly increased our 2023/2024 adjusted EBITDA estimates (reflects very minor adjusted EBITDA margin increases). See exhibits 5 and 6.