TSX:AFN - Post Discussion
Post by
retiredcf on Nov 08, 2023 9:01am
RBC
November 7, 2023
AGI (Ag Growth International)
Solid Q3/23 results driven by continued margin improvement
TSX: AFN | CAD 48.63 | Outperform | Price Target CAD 75.00
Sentiment: Neutral
Our view: We expect a neutral reaction from Ag Growth shares to Q3 results that were generally in-line with expectations along with a positive 50bps lift in margin guidance and unchanged 2023 EBITDA outlook. We are encouraged by the improved margin expectations, indicating that operational execution and margin enhancement are progressing well. We remain upbeat on Ag Growth shares as the company continues to execute on cost management and de-leveraging priorities with potential for continued organic sales growth.
Actual: $85M EBITDA | RBCe: $80M | Consensus: $83M
Outlook: Ag Growth reiterated 2023 EBITDA guidance of >$290M (vs. RBCe $290M, consensus $293M, and $235M in 2022) and raised EBITDA margin guidance to >18.5% from >18% (vs. RBCe 18.3%, consensus 18.4% and 16.1% in 2022). The increased margin outlook is supported by successful operational improvement and expense management priorities in addition to the continued margin accretive mix shift in Farm sales.
Summary: Q3/23 results came in slightly above estimates as softer sales ($410M actual vs. RBCe $430M) were more than offset by stronger EBITDA margins (20.6% actual vs. RBCe 18.7% and 19.0% in Q3/22).
In the Farm segment, sales were slightly below expectations ($227M actual vs. RBCe $232M) while segment EBITDA exceeded expectations ($62M vs. RBCe $56M). Weaker sales were primarily attributable to North America as International sales were above our estimates while EBITDA margin outperformance (27.2% actual vs. 24.0% RBCe) was driven by manufacturing efficiency, continued strong demand for higher-margin portable equipment sales, particularly in Canada, and progress in the reorganized Digital segment. The Farm segment order book was mixed with the consolidated backlog increasing 22% y/y due to the Canada order book growing 129% balanced by US down -6% and International down -50%.
In the Commercial segment, sales were below estimates ($183M actual vs. RBCe $198M) resulting in slightly weaker segment EBITDA ($34M actual vs. RBCe $37M). Sales lagged due to weakness in North America resulting from cyclical demand and weakness in US Food platform sales partially offset by strong International demand while EBITDA margin performance was in line with our expectations (18.8% actual vs. 18.5% RBCe) supported by successful manufacturing expense management. The Commercial order book continued to unwind with the consolidated backlog down -4% y/y, driven primarily by Canada down -30% and US down -14%, partially offset by the International book increasing 4%.
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