It seems to be unanimous. GLTA
AG GROWTH INTERNATIONAL INC.
Pivoting To Top-line Growth – Q4/23 Review Our Conclusion
AFN reported solid Q4/23 results and provided 2024 guidance that was
ahead of expectations. Full-year 2023 was characterized by strong margin
expansion (primarily driven by the company’s operational excellence
programs) and solid organic growth. For 2024/2025, we expect a stabilization
of margins and a pivot to focus on revenue growth (driven by investment in
international markets, product transfers, amongst other factors). We are also
encouraged by AFN’s ~25% Y/Y increase in order book (record level). We
are raising our 2024 (higher margin assumption) and 2025 (higher revenue
growth assumption) estimates. Our price target increases to $82 from $78.
AFN remains a top pick, and we reaffirm our Outperformer rating.
Key Points
Record Order Book; Reaffirming ~$2B Sales Target In Next Two To
Three Years: As other ag. equipment players navigate cyclical impacts, AFN
is well positioned in 2024 to deliver continued organic growth (accelerating in
H2/24 due to the timing of orders). AFN’s order book is up 25% Y/Y to
$747MM as of the end of Q4/23 (driven by strength in International
Commercial), a record level for the company (providing five to seven months
of visibility). Despite near-term softness in Brazil and Australia Farm, product
transfers (>$55MM in new awards), emerging market growth, and growth
platforms (Digital, Food and Feed) should be tailwinds in 2024 and beyond.
Further, AFN reiterated its prior Investor Day sales target of ~$2B over its
planning horizon (i.e., next two to three years) vs. 2023A of $1.53B.
Margin Gains In 2023 Sustainable; Operational Excellence Benefits To
Carry Into 2024: AFN entered 2023 guiding for its adj. EBITDA margin to
expand from ~16% in 2022 to ~17% in 2023, but finished 2023 with a 19.3%
margin, or ~315 bps higher Y/Y. Of this, at least 200 bps is structural (i.e.,
operational excellence programs), with the remaining benefit coming from
project mix. Looking forward, AFN expects margins to stabilize in the ~19%
range. While project mix will be a headwind in 2024 (i.e., higher mix of
Commercial), AFN expects further incremental gains from operational
excellence programs to provide an offset. Longer-term, AFN’s ongoing multi-
year ERP investment (~$14MM/year) to upgrade its systems, processes and
market intelligence should help the overall margin profile over time.
Leverage Ratio Under 3x For First Time In 10 Years; Eyeing India
Expansion: AFN’s net debt / TTM EBITDA ratio notched down to 2.8x at
Q4/23 vs. 3.2x Q/Q and 3.7x Y/Y, and the company sees a clear path to get
to at or below 2.5x in 2024. Given the improved balance sheet, AFN is now
looking to invest into organic expansion. In the near term, India will be the
focus (Indian operations have doubled since 2019; company-leading margin
profile), and AFN has already acquired land for future expansion.