IA Raise Target After a “strong 2022 year-to-date performance driven by robust growth in multiple geographies and margin expansion,” iA Capital Markets analyst Matthew Weekes reaffirmed his “constructive” outlook on Ag Growth International Inc. ahead of its Investor Day event on Thursday.
“AFN has delivered exceptional growth year-to-date in 2022, driven by robust sales growth across multiple geographies, including the U.S., Brazil, India, and Australia, along with recovering sales in Canada; and margin expansion driven by a focus on operational efficiency, disciplined pricing, volume growth and operating leverage, and a favourable sales mix,” he said. “All in all, AFN is on pace to generate 20-per-cent revenue growth and 30-per-cent Adj. EBITDA growth in 2022, with limited incremental M&A and despite losses of $10-million year-to-date in the Digital division. Headwinds in the Digital business have led the Company to recently announce restructuring initiatives and anticipated impairment charges in Q4. The Digital segment accounts for 3 per cent of AFN’s total revenues. The market has likely discounted AGI Digital to a large degree and as such, it could provide upside if it is able to improve its profitability. We expect that the Company will touch on how it intends to refocus AGI Digital at Investor Day.”
Mr. Weekes predicts the tone of Investor Day to be “generally positive” with the the introduction of strategic priorities under new chief executive office Paul Householder. He said investors should “expect consistent focus on operational excellence, balance sheet discipline, and profitable organic growth.”
“AFN’s order backlogs have continued to expand through 2022, albeit at a slowing pace off of already-strong levels,” said Mr. Weekes. “AFN expects its strong backlog to provide a foundation for continued positive momentum heading into Q4/22 and 2023, and is confident in further margin expansion as well. Our 2023/2024 estimates are on the low end of consensus but still project solid organic growth. Over the long term, we remain bullish on fundamentals underpinning growth in agri-food equipment and infrastructure.”
Maintaining a “speculative buy” recommendation for the Winnipeg-based company’s shares, he raised his target to $54 from $50 following a valuation update. The average target is $57.36.
“Our Speculative Buy rating is underpinned by AFN’s (a) diversified ag-equipment business serving both Farm and Commercial customers, with exposure to both fast-growing and mature agricultural markets; (b) track record of strong growth in per share metrics; (c) constructive near-term outlook with projected mid-single-digit adjusted EBITDA CAGR [compound annual growth rate] from 2022E-2024E, driven by organic growth and a focus on margins while reducing leverage; and (d) positive secular trends underpinning equipment in agri-food equipment and infrastructure; tempered by (e) litigation risk,” Mr. Weekes said.