Despite trimming his third-quarter earnings expectation for Ag Growth International Inc., Desjardins Securities analyst Gary Ho expects notable gains for the remainder of the year from its International segment.
“We expect strong 2H results from Brazil,” he said. “Activity has picked up with improving farmer sentiment, strong crop yields and increasing order books, aided by new government financing programs and a stabilizing political backdrop. AFN recently won some commercial projects in Brazil (lumpy). This more than offset some pockets of weakness in Canada due to drier conditions (spotty; some areas have decent crop yields).”
“With better visibility into 4Q, we remain confident in AFN hitting $290-million-plus in EBITDA and an 18-per-cent-plus margin given operational/ efficiency initiatives.”
In a note released Friday, Mr. Ho trimmed his third-quarter revenue estimate to $432-million, down from $452-million previously but above the Street’s expectation of $430-million and above both the results of last year ($402-million) and last quarter ($390-million). His lower projection is a result of declining projections for its Canadian business ($93-million from $111-million).
“[We] increased 4Q EBITDA to reflect more even seasonality, and introduced 2025 estimates,” he said. “We view AFN’s focus on operational synergies, margin improvement and deleveraging as catalysts, while insights gathered from the Canada Farm Show gave us greater conviction on these initiatives and product transfers, and comfort around the ag backdrop.”
“With robust growth in International (stronger 3Q/4Q), earnings attribution should be more evenly distributed in 2H. We thus reined in 3Q EBITDA to $82-million and increased 4Q EBITDA to $74-million (2023 unchanged at $292-million).”
Maintaining a “buy” recommendation for Ag Growth shares, Mr. Ho lowered his target to $82 from $84. The average is $76.85.
“AFN’s strategic investments in product and regional expansion have positioned it to harness its size and scale in the global buildout of food infrastructure,” he said. “Our positive investment thesis is predicated on: (1) broad-based growth across segments and regions; (2) margin expansion through operational excellence; (3) deleveraging; and (4) a proactive approach to driving organic growth through product transfers and other initiatives.”