CIBCEQUITY RESEARCH
May 11, 2022 Earnings Update
AG GROWTH INTERNATIONAL INC.
Backlog/Quoting Levels Remain Very Healthy – Q1/22 Review
Our Conclusion
We continue to see AFN delivering strong results in 2022 and 2023,
reflecting the solid outlook for Americas agriculture given the global food
crisis brought on by Russia’s invasion of Ukraine (it could take between five
and ten years to rebuild Ukraine’s grain infrastructure). While AFN’s
Canadian sales have been weak due to the 2021 drought, we expect a
rebound in H2/22 with the new crop. Meanwhile, the U.S., Brazil and India
should continue to deliver strong results backed by market share gains. AFN
is trading at a 2023E EV/EBITDA multiple of ~7x, well below its historical 10-
year average of ~9x, despite the positive outlook and strong backlog levels.
Aside from incorporating Q1/22 results, our forward adjusted EBITDA
estimates are largely unchanged. We reaffirm our $51 price target and
Outperformer rating.
Key Points
Continuing To Gain Market Share In The U.S. And Brazil: In Q1/22, U.S.
and Brazil sales rose +19% Y/Y and +75% Y/Y, respectively, vs. a very
strong 2021 period. In the U.S., AFN is benefitting from its sustained focus
on expanding its U.S. dealer base (and we expect this strategy to drive top-
line growth for a number of years). In Brazil, the majority of the growth
pertains to market share gains, with the balance pertaining to broader growth
in the market driven by positive market fundamentals.
Canadian Farm Business Expected To Recover; Canada Commercial
Market Turning The Corner: Canada sales were down 9% Y/Y in Q1/22
due to weak Farm sales resulting from the 2021 drought. While we expect
this weakness to extend into Q2/22, we see sales rebounding in H2/22 as the
new crop is harvested (positive crop outlook given the Ukraine conflict and
strong canola/wheat pricing). Offsetting near-term Farm weakness, grain
terminal/processing project quoting has picked up, and Canada Commercial
platform backlog is up 119% Y/Y.
Backlog Levels Remain Healthy (Up +19% Y/Y Vs. Strong 2021 Levels):
Backlog levels are up +19% Y/Y. Farm backlog is up +8% Y/Y as strong U.S.
and Brazil levels are partly offset by weakness in Canada due to the 2021
drought. Backlog levels in the Commercial segment (including Food) are up
+31% Y/Y, with a notable recovery in Canada and continued strength in U.S.
as demand for commercial grain infrastructure continues to move higher.
We Still See 2022 Margins Expanding Despite Ongoing Supply Chain
Constraints: Supply chain dynamics are manageable. Management
continues to see adjusted EBITDA margins ticking up 100bps-200bps over
the next couple of years, and sees margins for FY2022 expanding slightly vs.
FY2021. This is consistent with our thinking: we forecast a FY2022 adjusted
EBITDA margin of 15.2% vs. FY2021A of 14.7%.