CIBC and LB SecuritiesAg Growth has been re-rated recently by analysts due to much rosier outlook for ag business during 2018-19 and large benefits expected from new Tax Law in US.
LB Securities' comment/upgrade to $65,as follows ;
" AFN: New US Tax provision could be a boon for farmers and AFN "
CIBC Institutional Equity Research
January 9, 2018
Ag Growth International Inc.
Brazil Ramp Drives 2018/19 Outlook
Our Conclusion
AFN continues to be a top pick given its positioning as one of the top turnkey ag-storage-solution companies globally and that effective grain storage remains one of the top themes in agriculture today. We believe 2018 and 2019 will be defined by the ramp of AFN's Brazil operations, which ultimately should add ~$30MM in EBITDA. U.S. pent-up demand should continue to support the farm business despite challenging farm incomes (U.S. on-farm storage has been on the decline since 2012). FCF yields are attractive (10% on 2019 estimates). We raise our price target to $70 from $65 and maintain our Outperformer rating.
Implications
1) Brazil Ramp Progressing Well; Big Impact In 2019: We see AFN hitting its stride in Brazil in the back half of 2018, and expect to see a meaningful lift in EBITDA in 2019 (~$30MM long-term opportunity). Interest rates have halved to 7% in a year, positive for demand.
2) Pent-up U.S. Demand And Global Synergies Should Offset Depressed Farm Incomes: We noticed a good pick-up for lower-ticket items such as portable and material handling in 2017, and we expect a further pick-up in 2018. In the U.S., on-farm storage represents about 60% of production, down from about 72% in 2011. The Global acquisition is expected to add $5MM+ in synergies to 2018 results.
3) Expect More M&A: AFN remains comfortably in compliance with its covenants. We calculate senior debt / adj. EBITDA (excluding converts and including full trailing contribution from Global) of ~2.0x vs. a covenant of 3.25x. We expect AFN to be active on the M&A front as it looks to build its fertilizer, food, seed, and feed platforms.
4) Strong Anticipated FCF Profile: Lower anticipated capex (with the ~$40MM Brazilian greenfield now complete), the full impact of Global (along with $5MM+ in synergies), and the ramp-up of Commercial projects (backlog at record levels) should improve FCF meaningfully (FCF yield of 10% in 201