Ag Growth International Inc T.AFN.DB.J

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

Industrials

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 SunsetGrillon Nov 09, 2022 4:46pm

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Post# 35086563

Scotia Analysis

Strength on Top of Strength

OUR TAKE: Positive. 3Q adjusted EBITDA beat consensus by 23%. Once again, the company raised its 2022 EBITDA guidance, this time to >$228 million, from >$215 million in 2Q (and >$200 million in 1Q). The guidance implies 4Q22 EBITDA in-line or higher than last year (implying some continued conservativism in the guidance, in our view); backlog rose 4% y/y and YTD EBITDA margins are tracking 180bp higher. FCF was $48.7 million (~$2.50/share) and net debt to EBITDA declined to ~4.5x versus ~5.0x in 2Q. Healthy FCF generation in 4Q, in part due to typical seasonal patterns, should further reduce net debt to EBITDA to ~4.0x by the end of 2022.

AFN trades at ~7.5x EV/EBITDA (using its updated guidance), effectively the lowest multiple in a decade, reflecting an ~20% discount to its historical average. We continue to like the story as the company reaches an inflection point in terms of FCF generation and deleveraging. We will update our estimates following the company’s conference call tomorrow at 8 am (1-888-319-4610).

KEY POINTS:

AFN reported sales and adjusted EBITDA of $402 million and $76.3 million versus consensus of $388 million and $61.9 million. On a consolidated basis, sales and EBITDA grew 28% and 65% compared with last year – both were all-time records. EBITDA margins came in at 19.0%, increasing 420bp compared with last year. Included in its adjusted EBITDA calculation was $15.7 million in “transaction, transitional and other costs”. This was higher than the amount last quarter of $7.6 million (due to legal costs, integration work, and legal costs) likely due to management transition costs. From a segment perspective:

Farm sales (55% of consolidated sales) increased 20% y/y and adjusted EBITDA expanded 52%. Sales of portable grain handling equipment were particularly strong due to rising crop prices and low dealer inventories. Commercial sales (42%) increased 40% y/y and adjusted EBITDA expanded 97%. The company experienced significant growth in all regions; Brazil sales and adjusted EBITDA increased 30% and 67%, respectively. The company expects momentum to continue in Brazil in 4Q.
AGI Digital sales increased 9% y/y due to continued strong demand and order in-take. EBITDA was -$4.0 million versus $0.3 million last year primarily due to the change in revenue recognition as a result of moving to a subscription model. YTD EBITDA losses amount to $10 million.
Regionally, EBITDA rose by 55% in Canada, 52% in the U.S., and 70% in International. Other EBITDA was a loss of $6.8 million versus a loss of $6.6 million last year.
Backlog increased 4% y/y versus a record level last year, with increases in Canada (+18%) and International (+10%), offset by a normalization in the U.S. (-8%).

Net debt to EBITDA was 4.5x as at the end of 3Q, down from ~5.0x in 2Q.

Exhibit 1 - Big Beat