Post by
SunsetGrill on Aug 14, 2023 9:31am
Post c.call TD up to $83 from $77
Recommendation: BUY Risk: HIGH 12-Month Target Price: C$83.00 Prior: C$77.00 12-Month Dividend (Est.): C$0.60 12-Month Total Return: 41.3%
Fiscal Y-E December Shares O/S (f.d)(mm) 19.0 Float Shares (mm) 19.0 Net Debt ($mm) $776.6 Net Debt/Total Cap 73.1% BVPS (basic) $15.07 Net Debt/EBITDA 3.3x
Event Q2/23 adjusted EBITDA was $88.2mm (a quarterly record), which was ~17% above consensus. The beat was driven by exceptionally strong margins, which more than offset lower-than-expected revenues.
Management increased its 2023 adjusted EBITDA guidance to "at least $290mm" (from "at least $265mm"), which compares favourably with the pre-quarter consensus of $267.6mm. Further, AFN raised its 2023 adjusted EBITDA margin target to "at least 18%" (from 17%, while pre-quarter consensus was at 16.6%). Impact: POSITIVE
Adjusted EBITDA was $88.2mm vs. consensus/TD at $75.2mm/$75.9mm.
Adjusted EBITDA margin was 22.6% (+565bps y/y) vs. consensus of 17.5% and TD at 17.3%. Margins benefited from AFN's various operational excellence initiatives, including manufacturing efficiencies, centralized procurement, and workforce optimization (benefits being realized more quickly than originally expected). Pricing and mix were also supportive of the margins in the quarter. The Farm segment's EBITDA margin was 30.0% (+740bps y/y and well above our 23.1% estimate), while Commercial's EBITDA margin was 18.5% (+390bps y/y and ahead of our 14.8% estimate).
Revenue was $390.3mm (flat y/y), below consensus/TD at $428.5mm/ $439.1mm. Farm sales were +3% y/y, while Commercial sales were -4% y/y (weakness in food and fertilizer, in particular).
AFN's total net leverage ratio was 3.3x (vs. 3.6x in Q1/23). Management reiterated its expectation that leverage will trend towards the 3x level by YE2023.
We have increased our adjusted EBITDA forecasts, driven by our higher margin expectations, which more than offset a modest decline in our revenue estimates. Our target price increases to $83.00 (from $77.00) on the back of our higher adjusted EBITDA forecasts. TD Investment Conclusion Overall, global agriculture fundamentals are supportive of AFN's outlook, in our view, and we are attracted to the company-specific revenue growth and margin improvement opportunities that AFN offers. Meanwhile, we view AFN's valuation as attractive. We reiterate our BUY rating.