Ag Growth International Inc T.AFN

Alternate Symbol(s): AGGZF | T.AFN.DB.H | T.AFN.DB.G | T.AFN.DB.I | T.AFN.DB.J

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Ag Growth International Inc. is a provider of the equipment and solutions required to support the storage, transport, and processing of food globally. The Company provides equipment solutions for agriculture bulk commodities, including seed, fertilizer, grain, rice, feed, and food processing systems. It has manufacturing facilities in Canada, the United States, Brazil, Italy, France, and India and distributes its products globally. Its segments include Farm and commercial. Its Farm segment focuses on the needs of on-farm customers, and its product offerings include grain, seed, and fertilizer handling equipment; aeration products; grain and fuel storage solutions, and grain management technologies. Its Commercial segment focuses on commercial entities, such as port facility operators, food processors and elevators. Its product offerings include larger diameter grain storage bins and high-capacity grain handling equipment; food and feed handling storage and processing equipment.

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Ag Growth International Inc

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Post by retiredcfon Aug 15, 2022 7:41am

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Post# 34895945

RBC Report

Their upside scenario target is now $65.00. GLTA

August 12, 2022

Outperform

TSX: AFN; CAD 39.50

Price Target CAD 55.00 ↑ 50.00

AGI (Ag Growth International)

Model Update: Favourable ag fundamentals and strong execution set-up for H2/22 and 2023

Our view: We believe AGI should see continued growth from the combination of a strong ag cycle with high crop volumes and prices, structural tailwinds from global ag infrastructure investments, ramp-up of new businesses (Brazil, India, Digital), and continued strong execution. We forecast strong FCF generation (~20% starting in 2023) which should support further investment in organic growth initiatives and balance sheet de-leveraging.

Key points:

Robust sales growth driven by cyclical and structural trends, along with recent investments: We believe the ag environment remains favourable with high grain volumes and prices, and view the global trend for increased ag infrastructure investment as a broad tailwind. We see a strong set-up leading into H2/22 with significant backlogs (+19% y/y) providing excellent visibility and operational investments paying off.

We forecast Farm segment sales to increase 14% and 10% in 2022 and 2023, driven by a constructive ag environment and low dealer inventory in the US paired with continued strength in international markets as relatively newer businesses in Brazil and India continue to ramp.
We forecast Commercial segment sales up 21% and 12% in 2022 and 2023 as this quarter pointed to a rebound in Canadian demand that is expected to continue along with strong Food Platform growth in international markets.
In Digital, we see sales rising 25% and 33% in 2022 and 2023, as supply- chain issues ease and production is able to meet strong demand.

Margins set for continued recovery with potential upside: We expect further margin expansion given moderating cost headwinds from falling steel costs, company actions to offset rising costs with real-time quoting, growth in margin accretive businesses (Brazil, India), and improved operations as new businesses ramp (Food, Digital). We think AGI has done an excellent job navigating through a very challenging margin environment over the past 2-years, and should see benefits from improved operations going forward. We forecast EBITDA margins increase to 16% in 2023, from 15% in 2020-22, with potential long-term upside if the company continues to execute well.

Strong FCF supports stronger balance sheet and growth investment: As AGI sees continued organic growth, we forecast significant free cash flow which will can be directed toward de-levering the balance sheet and further organic investments. We expect $65M and $145M FCF for 2022 and 2023 (8% and 20% yield).

Reiterate Outperform, raise PT to $55: We are increasing 2022E and 2023E EBITDA to $245M and $264M, from $241M and $260M