TSX:AFN - Post Discussion
Post by
SunsetGrill on Nov 09, 2022 4:46pm
Scotia Analysis
Strength on Top of Strength
OUR TAKE: Positive. 3Q adjusted EBITDA beat consensus by 23%. Once again, the company raised its 2022 EBITDA guidance, this time to >$228 million, from >$215 million in 2Q (and >$200 million in 1Q). The guidance implies 4Q22 EBITDA in-line or higher than last year (implying some continued conservativism in the guidance, in our view); backlog rose 4% y/y and YTD EBITDA margins are tracking 180bp higher. FCF was $48.7 million (~$2.50/share) and net debt to EBITDA declined to ~4.5x versus ~5.0x in 2Q. Healthy FCF generation in 4Q, in part due to typical seasonal patterns, should further reduce net debt to EBITDA to ~4.0x by the end of 2022.
AFN trades at ~7.5x EV/EBITDA (using its updated guidance), effectively the lowest multiple in a decade, reflecting an ~20% discount to its historical average. We continue to like the story as the company reaches an inflection point in terms of FCF generation and deleveraging. We will update our estimates following the company’s conference call tomorrow at 8 am (1-888-319-4610).
KEY POINTS:
AFN reported sales and adjusted EBITDA of $402 million and $76.3 million versus consensus of $388 million and $61.9 million. On a consolidated basis, sales and EBITDA grew 28% and 65% compared with last year – both were all-time records. EBITDA margins came in at 19.0%, increasing 420bp compared with last year. Included in its adjusted EBITDA calculation was $15.7 million in “transaction, transitional and other costs”. This was higher than the amount last quarter of $7.6 million (due to legal costs, integration work, and legal costs) likely due to management transition costs. From a segment perspective:
- Farm sales (55% of consolidated sales) increased 20% y/y and adjusted EBITDA expanded 52%. Sales of portable grain handling equipment were particularly strong due to rising crop prices and low dealer inventories. Commercial sales (42%) increased 40% y/y and adjusted EBITDA expanded 97%. The company experienced significant growth in all regions; Brazil sales and adjusted EBITDA increased 30% and 67%, respectively. The company expects momentum to continue in Brazil in 4Q.
- AGI Digital sales increased 9% y/y due to continued strong demand and order in-take. EBITDA was -$4.0 million versus $0.3 million last year primarily due to the change in revenue recognition as a result of moving to a subscription model. YTD EBITDA losses amount to $10 million.
- Regionally, EBITDA rose by 55% in Canada, 52% in the U.S., and 70% in International. Other EBITDA was a loss of $6.8 million versus a loss of $6.6 million last year.
- Backlog increased 4% y/y versus a record level last year, with increases in Canada (+18%) and International (+10%), offset by a normalization in the U.S. (-8%).
Net debt to EBITDA was 4.5x as at the end of 3Q, down from ~5.0x in 2Q.
Exhibit 1 - Big Beat |
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Source: Company reports; FactSet; Scotiabank GBM estimates. |
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