Ag Growth International Inc.
(AFN-T) C$60.50
Solid Q4/23 Results and Favourable Outlook
Event
AFN reported Q4/23 adjusted EBITDA of $73.1mm (+43.3% y/y) vs. consensus/
TD at $72.5mm/$71.7mm. Meanwhile, management introduced 2024 adjusted
EBITDA guidance of "at least $310mm" (vs. pre-quarter consensus of $307.3mm).
Further, AFN's YE2023 order book reached a record level (+25% y/y), and the
company's total net leverage ratio continued to improve (was 2.8x vs. 3.2x at
Q3/23).
Impact: SLIGHTLY POSITIVE
Revenue was $379.3mm (+1.4% y/y), below consensus/TD at $413.4mm/
$413.3mm. However, adjusted EBITDA margins continued their trend of
outperformance (19.3% vs. consensus/TD at 17.5%/17.3%), which resulted
in Q4/23 adjusted EBITDA coming in just above expectations. Farm segment
sales were +4% y/y, while Commercial segment sales were -1% y/y. Adjusted
EBITDA margin was up 563bps y/y (driven by gains in both Farm and
Commercial). Margin improvements continued to reflect benefits of AFN's
operational excellence initiatives, and segment-specific factors (including mix).
Outlook: Encouragingly, management expects AFN's adjusted EBITDA
margin to be sustained around the ~19% level going forward (19.3% for
FY2023; +316bps y/y). For 2024, AFN expects any margin drag associated with
a likely mix shift toward Commercial vs. Farm to be offset by the benefit of
incremental operational excellence gains. Based on the low end of AFN's 2024
adjusted EBITDA guidance (i.e., $310mm), an ~19% margin implies mid-
single-digit y/y revenue growth (appears to be well-supported by AFN's strong
order book, in our view). Regarding capital allocation, management intends to
prioritize investments aimed at supporting organic growth initiatives.
Our consolidated 2024 adjusted EBITDA estimate is little changed (higher
margins, offset by lower revenues). Meanwhile, we have rolled forward our target
valuation period (now based on our newly introduced 2025 forecasts). Our target
price increases to $83.00 (from $75.00 previously).
TD Investment Conclusion
Despite some headwinds facing the broader agriculture sector (including lower
crop prices), we are encouraged by AFN's outlook, and we see the business as
well-positioned to grow over our forecast period (supported by company-specific
opportunities). Meanwhile, we see AFN's valuation as attractive.