CIBC’s Jacob Bout increased his Ag Growth International Inc. target to $78, above the $74.75 average, from $72 with an “outperformer” rating. Other changes include: Scotia’s Michael Doumet to $82 from $76 with a “sector outperform” rating, Desjardins Securities’ Gary Ho to $84 from $75 with a “buy” rating and ATB Capital Markets’ Tim Monachello to $78.50 from $70 with an “outperform” rating.
“2Q beat – all from higher margins. AFN sales grew 50 per cent in 2021 and 2022 (combined) on an organic basis,” said Mr. Doumet. “And, while we remain optimistic on its growth prospects, the 2Q beat highlights the more meaningful upside potential from (ongoing) margin expansion. Margin expansion has come more quickly than anticipated and, given the underlying momentum, likely has more room to go. The margin expansion goes to the essence of our bull thesis: higher margins and rightsized capital outlays (capex/WC) will drive a significant increase in FCF generation and an acceleration of the B/S deleveraging. Higher returns and lower debt should lead to multiple expansion.
“We see material upside in the shares: (i) AFN shares are up 85 per cent in the LTM [last 12 months], but its multiple remains at the lowest level in the decade and (ii) at current levels, AFN shares are below their 2019 level, despite the company nearly doubling its EBITDA (and having the same net debt). With positive momentum in terms of growth opportunities, margin upside, and FCF, we believe AFN shares, which trade at 7 times EV/EBITDA on our 2023 estimates, are undervalued.”