CIBC NotesAg Growth International (Outperformer) – U.S. Farm Segment To Remain Soft In H2/24: While we are expecting large crops in both the U.S. and Canada, we are expecting softness in demand to continue in U.S. Farm in Q3/24. The improvement in U.S. dealer inventories (i.e., lower) seen in August 2024 was not sustained through the remainder of Q3/24. Lower
crop prices continue to weigh on farmer sentiment. While Q2 and Q3 historically have been the strongest quarters for AFN, we expect Q4 results in 2024 to be the strongest, driven by international operations (note, we should see a strong build in the Q3/24 order book). As of Q2/24, the Southeast Asia order book was up 144% and the Brazil commercial order book up 83% Y/Y. AFN trades at <6.0x 2025E EV/EBITDA vs. its ag. equipment peers at ~9x. Given the recent takeover offer (that was turned down by AFN), share price downside should be limited. Additionally, as AFN transitions into an agriculture/food infrastructure story, we expect
to see a multiple expansion. We reaffirm our Outperformer rating, but lower our price target from $78 to $75.
Q3/24 Preview: We forecast Q3/24 adj. EBITDA of ~C$76MM (vs. consensus $89MM), ~10% lower Y/Y. We expect continued weakness in the U.S. Farm sector, which is being offset by the Commercial sector (International the big driver) and the Canada Farm sector which should remain healthy. We are forecasting EBITDA margin contraction due to mix. The focus for Q3/24 results will be on 2024 guidance, as it could be lowered (we are forecasting 2024 EBITDA of $284.5MM vs. midpoint of guidance of $305MM), order book levels (-11% Q/Q at Q2/24-end), and updates on the India expansion and product transfer strategy.
AFN: We derive our $75 price target by applying a ~7.5x EV/EBITDA multiple (below historical average of ~8.5x) to our 2025 adjusted EBITDA estimate. AFN has no directly comparable companies. We assume net debt of ~$847MM (including financial leases).