TD lower to $73 from $78 - go figure
TD SECURITIES INC. - CANADA November 5, 2024 Price: C$50.32 (11/5/2024) Price Target: C$73.00 BUY (1) ESG SCORE: 74/100
QUICK TAKE: EARNINGS UPDATE Q3 EBITDA WELL BELOW CONSENSUS & ANOTHER 2024 GUIDANCE CUT; LARGELY PRICED IN? Michael Tupholme, CFA^ 416 307 9389 Key Data Symbol Market Cap TSX: AFN-T C$959.6MM THE TD COWEN INSIGHT Adj. EBITDA of $68.5mm was ~14% below consensus, and AFN cut its 2024 adj. EBITDA guidance to ~$280mm (down 8% vs. prior guidance midpoint). That said, we believe this has been priced in to a certain extent (stock -6% since mid-October). While 2024 guidance was cut, implied Q4/24 adj. EBITDA is in line with consensus. Also, the order book was +36% y/y (but only +2% q/q), and AFN announced an NCIB. Event: AFN reported adj. EBITDA of $68.5mm (-18.9% y/y); well below consensus/TD at $79.5mm/$75.1mm (note: estimates were already recently revised lower). The miss was driven primarily by lower-than-expected revenues. AFN now expects full-year 2024 adj. EBITDA of ~$280mm vs. its prior adj. EBITDA guidance range of $300mm–$310mm. This implies that Q4/24 adj. EBITDA will be ~ $93mm, which we note is essentially in line with consensus. AFN announced its intention to implement an NCIB for up to 10% of the company's public float (subject to TSX approval). Conference call at 8:00 a.m. ET on November 6 (webcast link Impact: SLIGHTLY NEGATIVE ). Adjusted EBITDA margin was 19.2% (-142bps y/y) vs. consensus/TD at 19.5%/19.2%. Farm segment EBITDA margin was 24.6% (-262bps y/y; below our 27.2% estimate). Commercial segment EBITDA margin was 17.9% (-90bps y/y; above our 16.0% estimate). Revenue was $357.2mm (-12.9% y/y); below consensus/TD at $406.7mm/$390.6mm. Farm segment sales of $184.5mm were -18.8% y/y, driven by sustained weakness across the U.S. market (ongoing harvest and realization of a large U.S. crop yield were offset by generally low commodity prices). Commercial segment sales of $172.6mm were -5.5% y/ y (activity across all international markets was said to remain robust). AFN's Q3/24 order book stood at $664.7mm; +36% y/y, but up only 2% q/q. The order book includes the signing of several new customer contracts in Brazil with a combined value of ~$105mm. AFN's total net leverage ratio was 3.1x (unchanged vs. Q2/24, and down very slightly vs. 3.2x in Q3/23). Outlook Commentary: Management expects favourable Commercial segment performance in Q4/24 and FY2025 (supported by a strong order book and robust pipeline). Meanwhile, AFN has progressed improvement actions across its U.S. Farm business. Research analysts marked with ^ above are not associated persons of TD Securities (USA) LLC and are not registered as Research Analysts under FINRA rules. Research analysts registered solely with FINRA are not subject to CIRO disclosure requirements. TDSECURITIES.COM Please see pages 3 to 8 of this report for important disclosures. TD COWEN Ag Growth International Inc. EQUITY RESEARCH November 5, 2024 VALUATION METHODOLOGY AND RISKS Valuation Methodology Industrial Products Our valuation methodology is primarily based on Enterprise Value to EBITDA (EV/EBITDA) multiples and Price-to-Earnings (P/E) multiples. In certain instances, we use a sum-of-the parts valuation methodology to derive our price targets. We incorporate company and peer historical and current valuation multiples, as well as our analysis of future expected growth rates, margins/returns, company-specific risks, and other inputs from our research when deriving our target valuation multiples. Investment Risks Industrial Products General economic conditions. Cyclicality and seasonality related to key industries served. Increases in interest rates. Inability to attract skilled labour and/or heightened labour inflation. Competitive behaviour. Reputational and liability risks. Foreign exchange fluctuations and commodity price volatility. Acquisition, integration, and synergy realization risks. Risks To The Price Target Industry cyclicality and general economic conditions Decreased crop yields Production cost volatility (including, but not limited to, raw-material costs) International sales/operations risk Dependence on key personnel Management oversight of diverse operations Litigation risk