From Globe & Mail this AM LOTS OF UPSIDE HERE!! GLTA
After a better-than-expected sales result in the final quarter of 2021, iA Capital Markets analyst Matthew Weekes continues to see “positive momentum” for Ag Growth International Inc. (
), setting up “strong” growth potential in this fiscal year.
Shares of the Winnipeg-based company soared 8.5 per cent on Wednesday following the premarket release of its quarterly results, which Mr. Weekes summarized as “a bit mixed and included some noisy items.”
The highlight was better-than-anticipated sales results. For the quarter, it saw a rise of 44 per cent year-over-year to $327-million, topping both Mr. Weekes’s $286-million estimate and the consensus of $290-million. Adjusted earnings before interest, taxes, depreciation and amortization of $45-million, including a positive adjustment of $11-million related to management changes, also topped estimates ($38-million and $40-million, respectively).
“AFN continued to perform strongly in its U.S. and international geographies, which offset weakness in Canada,” the analyst said. “Sales in Brazil grew almost 270 per cent year-over-year, with strength in both Farm and Commercial products, reinforcing the view that AFN has reached an inflection point in its Brazilian business. The beat in sales relative to our forecast was driven by the Commercial platform.”
“Backlog continued to grow, reaching another record level at quarter-end, which lends a degree of visibility to the outlook. AFN expects another year of strong growth in2022, which should be driven by continued strength in US Farm and International markets, strong demand in Food with the addition of Eastern Fabricators to the platform, and growth in the Digital segment which should benefit from initiatives designed to increase penetration and the return of the trade show sales channel with COVID restrictions easing. Tight supply chains will likely impact gross margins, but we believe that AFN’s responsive pricing strategy will help mitigate these effect.”
Noting Ag Growth’s exposure to Russia is “minimal,” Mr. Weekes said the company’s 2022 guidance largely fell in line with his expectations, including adjusted EBITDA of at least $200-million, which would be a rise of 15 per cent year-over-year.
”We are adjusting our estimates to build in higher revenue growth in 2022, but offsetting this with lower assumed margins,” he said. “For 2023, we are increasing our estimates modestly, assuming high-singledigit growth.”
That led him to raise his target for Ag Growth shares to $49 from $48 with a “speculative buy” recommendation (unchanged). The average target is $49.78.
“We remain constructive on the growth potential and market fundamentals for AFN’s global business, including growth in high-quality food processing markets and the evolving market for Farm Technology,” said Mr. Weekes. “We look forward to AFN continuing its deleveraging focus, as well as refinancing the remaining convertible debentures due in 2022, which we expect to provide balance sheet de-risking and help mitigate risks associated with litigation.”
Others making changes include:
* Scotia’s Michael Doumet to $50 from $45 with a “sector outperform” rating.
“The fundamentals are better than they have ever been for AFN. The company guided for 2022 EBITDA of at least $200 million; we forecast $208 million, which reflects 18-per-cent growth,” he said. “While the one-time charges recorded in 4Q21 make a dent in what we view as a slew of positives (supportive backdrop, record backlog, margin recovery, profit growth, balance sheet delevering, etc.), to us, two significant positives stood out on the conference call: management stated that the incremental provisions related to the bin incident were final and that its net debt to EBITDA would decline to 4.0 times by the end of 2022 (from 5.0 times). In our view, this underscores what we expect will be a much cleaner story in 2022 – and what we hope will lead to an eventual positive re-rate.”
* Desjardins Securities’ David Newman to $53 from $49 with a “buy” rating.
“We have even higher conviction on AGI given strong fundamentals, resilience against steel and political headwinds, and a dissipating overhang from the bin incident,” said Mr. Newman.
* Raymond James’ Steve Hansen to $50 from $45 with an “outperform” rating.
“We are increasing our target price on Ag Growth International ... based upon our constructive view of the company’s solid 4Q21 print, record backlog, improved margin outlook, and attractive guide underpinned by robust macro fundamentals and accelerating commercial momentum in key markets,” said Mr. Hansen
* CIBC World Markets analyst Jacob Bout to $51 from $47 with an “outperformer” rating.