Ag Growth International Inc T.AFN

TD

[retiredcf]

Have a $77.00 target. GLTA

Ag Growth International Inc.

(AFN-T) C$56.00

AFN Resolves Fibreco Lawsuit Related to 2020 Grain Bin Failure Event

• Last night, AFN announced that it has reached a resolution in respect of the lawsuit brought against the company by Fibreco Export Inc. (in June 2021) in connection with a commercial grain storage bin failure (the "Bin Incident") that occurred in 2020 at Fibreco's export terminal in B.C.

• AFN expects to record an additional pre-tax charge of $15.6mm ($0.82/share) in Q2/23 in connection with the Fibreco settlement (amount is net of insurance recoveries that will be received). This charge is incremental to the remediation provision that AFN previously booked in respect of the Bin Incident (i.e., the unspent portion of the accrual recorded by AFN for remediation costs in respect of the Bin Incident was $40.7mm as at March 31, 2023). A cash payment in respect of the total unspent accrued amount is expected to be made in Q3/23.

  Impact: POSITIVE

• We view the announcement that AFN and Fibreco have entered into a mutual settlement agreement relating to the Bin Incident as a positive development, as we believe the lawsuit has acted as at least a partial overhang on AFN's stock/ valuation over the last several years.

• Further, we believe that investors will view the financial parameters of the settlement as reasonable. Together, the unspent portion of the remediation provision previously booked by AFN and the additional pre-tax provision that will be booked in Q2/23 equate to ~$56mm. This amount is below the value of the claim that was initiated against AFN by Fibreco in June 2021 (claim was for approximately $80mm). It is also worth noting that AFN indicated that it believes the settlement "will help to facilitate the finalization of other insurance- related matters" (i.e., there appears to be potential for certain additional insurance recoveries).

• Note, last night's settlement does not relate in any way to the other legal claim (for approximately $110mm) that was initiated against AFN by AGT Foods (a Fibreco customer) in connection with the Bin Incident. Still, recall, AFN had no contractual relationship with AGT, and has never deemed it necessary to book an accrual in respect of the AGT claim.