Our view: We think AGI should benefit from a supportive ag environment and strong execution for another solid quarter and into 2024. We expect growth in most segments and regions plus continued margin improvement to offset slight headwinds from dry conditions in Brazil. We remain upbeat on AGI as we believe shares are undervalued and have the potential to re-rate as the company carries strong operational performance into 2024 and shifts focus to moderate growth opportunities as the balance sheet delevers.
Key points:
Q4 results should be in line with guidance as ex-Brazil growth and margin improvement lead the way: We forecast revenue of $394M in Q4 (+5% y/ y) as headwinds from dry conditions in Brazil are offset by strength in North America and other International markets. We estimate $70M of EBITDA in Q4, up 37% y/y on stronger margins (18% vs. 14%), which brings 2023E results to $290M in EBITDA at 19% EBITDA margins, about in line with guidance of >$290M of EBITDA at >18.5% EBITDA margins.
Expecting a strong 2024 supported by a still constructive ag backdrop and continued operational improvements: As a result of tight global grain markets, farmer health remains strong, crop prices remain relatively elevated at 20-30% above the prior decade average while strong crop production and farm activity is supported by high planted acreage. We expect a favourable global ag market and continued execution on corporate priorities including product transfers, growth in emerging geographies, and restructured Food/Digital platforms should drive solid organic growth, offsetting some impact from the Brazil drought that could carry into the beginning of the year. We expect EBITDA margins to remain stable at ~19% as continued operational improvements offset headwinds from normalization in product mix shift. We forecast revenue at $1.6B in 2024E, up 7% y/y, and EBITDA at $307M, up 6% y/y.
Strong cash flow generation focused on deleveraging in H1, could shift to growth in H2: We forecast $122M of FCF in 2024E (12% yield) supported by continued organic growth and strong margins. With balance sheet deleveraging nearly at the target net debt to LTM EBITDA level of 2.5x (we estimate by end-Q1), we could see a shift to growth in H2/24. The next capital allocation priority would likely be on organic growth projects, likely in key growth regions India/Brazil and further facility consolidation to improve operational efficiency.
Reiterate OP rating and C$75 PT: We slightly adjust our 2023E and 2024E EBITDA to $290M and $307M, from $291M and $307M