Ahead of the April 29 release of its first-quarter 2024 financial results, Desjardins Securities analyst Gary Ho remains “confident” Ag Growth International Inc. can achieve its full-year EBITDA guidance of $310-milllion, which is a gain of 5 per cent year-over-year.
However, Mr. Ho warned the quarter is the “seasonally softest” for the Winnipeg-based agricultural equipment maker and thinks “growth is more weighted toward 2Q–4Q (delivery of Commercial projects are more 2H-weighted).” After a modest reduction to his near-term forecast, he’s projecting EBITDA of $52-million for the quarter, up 17 per cent year-over-year but below the $56-million consensus, which he thinks is high.
“We expect growth in the order book vs a year ago, but it could be lumpy sequentially given the timing of commercial projects (completions vs new wins),” he said. “The order book has a strong base of Commercial projects expected to ship in 2H. For 2024, we expect a steady year for North America, continued softness but a 2H recovery in Brazil, softness in Australia (improving throughout the year), robust performance in India and green shoots in Africa/Middle East commercial projects for EMEA. Overall, the mix should normalize given a stronger Commercial contribution vs Farm.
“We remain confident in 2024 EBITDA guidance of $310-million-plus (we model $318-million) and a flattish margin vs 2023 at 19.3 per cent, given order book visibility. This implies 5-per-cent-plus year-over-year growth, which should be weighted to 2Q–4Q given seasonality (stronger Farm in 2Q/3Q) and Commercial projects skewed toward 2H. AFN has easy comps in 1Q24 (some one-time items in 1Q23), but it is seasonally the weakest quarter, plus softness continued in Brazil/Australia.”
Reiterating his “positive” outlook and “buy” recommendation for Ag Growth shares despite lower revenue expectations for fiscal 2024 and 2025, Mr. Ho increased his target to $86 from $85. The current average is $81.56.
“Our positive investment thesis is predicated on: (1) broad-based growth across segments and regions; (2) margin expansion through operational excellence; (3) deleveraging; and (4) a proactive approach to driving organic growth through product transfers and other initiatives,” he said.