TSX:AFN - Post Discussion
Post by
retiredcf on Aug 15, 2022 7:41am
RBC Report
Their upside scenario target is now $65.00. GLTA
Outperform
TSX: AFN; CAD 39.50
Price Target CAD 55.00 ↑ 50.00
AGI (Ag Growth International)
Model Update: Favourable ag fundamentals and strong execution set-up for H2/22 and 2023
Our view: We believe AGI should see continued growth from the combination of a strong ag cycle with high crop volumes and prices, structural tailwinds from global ag infrastructure investments, ramp-up of new businesses (Brazil, India, Digital), and continued strong execution. We forecast strong FCF generation (~20% starting in 2023) which should support further investment in organic growth initiatives and balance sheet de-leveraging.
Key points:
Robust sales growth driven by cyclical and structural trends, along with recent investments: We believe the ag environment remains favourable with high grain volumes and prices, and view the global trend for increased ag infrastructure investment as a broad tailwind. We see a strong set-up leading into H2/22 with significant backlogs (+19% y/y) providing excellent visibility and operational investments paying off.
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We forecast Farm segment sales to increase 14% and 10% in 2022 and 2023, driven by a constructive ag environment and low dealer inventory in the US paired with continued strength in international markets as relatively newer businesses in Brazil and India continue to ramp.
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We forecast Commercial segment sales up 21% and 12% in 2022 and 2023 as this quarter pointed to a rebound in Canadian demand that is expected to continue along with strong Food Platform growth in international markets.
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In Digital, we see sales rising 25% and 33% in 2022 and 2023, as supply- chain issues ease and production is able to meet strong demand.
Margins set for continued recovery with potential upside: We expect further margin expansion given moderating cost headwinds from falling steel costs, company actions to offset rising costs with real-time quoting, growth in margin accretive businesses (Brazil, India), and improved operations as new businesses ramp (Food, Digital). We think AGI has done an excellent job navigating through a very challenging margin environment over the past 2-years, and should see benefits from improved operations going forward. We forecast EBITDA margins increase to 16% in 2023, from 15% in 2020-22, with potential long-term upside if the company continues to execute well.
Strong FCF supports stronger balance sheet and growth investment: As AGI sees continued organic growth, we forecast significant free cash flow which will can be directed toward de-levering the balance sheet and further organic investments. We expect $65M and $145M FCF for 2022 and 2023 (8% and 20% yield).
Reiterate Outperform, raise PT to $55: We are increasing 2022E and 2023E EBITDA to $245M and $264M, from $241M and $260M
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