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.

TSX:AFN - Post by User

Ag Growth International Inc

<< Previous

Bullboard Posts

Next >>

Post by retiredcfon Nov 09, 2023 7:23am

147 Views

Post# 35725479

RBC 2

Their upside scenario target is $85.00. GLTA

November 8, 2023

AGI (Ag Growth International)
Operational success story continues to run

Outperform

TSX: AFN; CAD 51.05

Price Target CAD 75.00

Our view: We believe AGI has done well to execute on priorities of organic growth, margin improvement, and de-leveraging and remain confident heading into 2024 against a supportive ag backdrop of still elevated crop volumes and prices. We view shares as undervalued at ~6x EV/EBITDA, which is a ~3x discount to larger ag equipment peers and below the historical average of ~8x and historical discount to peers of ~1.5x (Exhibit 1). We think continued execution resulting in stronger FCF, de-leveraging, and the diversified growth profile supports a re-rating to historical averages. We reiterate our Outperform rating and $75 PT.

Key points:

Sales growth well-positioned into 2024: Revenue drivers appear intact with management noting continued progress on geographic expansion, particularly in EMEA, successful product transfers in key growth areas of India and Brazil, and expected tailwinds from the restructured Food and Digital sub-segments. We would also highlight YTD growth has been stronger than results may suggest as declining steel prices (which are passed-through via pricing) resulted in lower revenues — normalized growth in Q3 adjusting for the steel price decline would be ~5-7% (vs. 2% y/y). In Farm, we forecast sales to increase 13 , led by sustained demand for portable equipment in Canada supported by a robust backlog compounded by continued International growth. In Commercial, we forecast sales up 5%/6% in 2023/2024, as stronger International sales offset slower North American growth; however, we could see potential upside if rates peak.

Operational execution continues to yield margin expansion: Management raised EBITDA margin guidance again this quarter to >18.5% (from >18.0% previously). While some margin expansion can be attributed to the positive mix shift from the higher proportion of margin accretive portable equipment sales, we are encouraged by management commentary on improved margin profiles across product categories. Management also noted continued operational improvements should offset potential headwinds as mix shifts normalize. We forecast 18.9%/18.7% EBITDA margin for 2023/2024.

Strong FCF generation focused on debt repayment in the near-term with organic growth investment on the horizon: We forecast FCF inflecting higher in 2024 ($123M, 13% yield), driven by stronger earnings and better working capital management. We expect continued focus on reducing debt in the near-term as the company targets leverage ratios of 3.0x by year- end and 2.5x by mid-2024 (vs. ~3.2x today). Once the 2.5x leverage target is reached, management indicated AGI will be well-positioned to invest in high incremental return growth initiatives with a focus on India and Brazil.

Reiterate Outperform, maintain $75 PT: We raise our 2023E/2024E EBITDA to $291M/$307M, respectively, from $290M/$301M