A bit more reasonable than $62.00. GLTA
Desjardins Securities analyst Gary Ho thinks strength in Ag Growth International Inc.’sCommercial segment will likely not be enough to offset “softness” in its U.S. Farm business when it reports third-quarter financial results in early November.
In a note released Monday, he cut his forecast for the Winnipeg-based company despite believing “multiple sizeable project wins in International that should drive year-over-year backlog growth.
“Aside from U.S. Farm, other platforms/regions remain solid while operational excellence should sustain EBITDA margin at 19 per cent plus and leverage trending toward 2.5 times by 4Q24,” said Mr. Ho.
He’s now forecasting revenue of $366-million, down from $399-million and below fiscal 2023′s $410-million. His adjusted EBITDA projection slid to $74-million from $81-million also short of last year’s $85-million. Both expectations are under the consensus estimates on the Street ($425-million and $85-million, respectively).
“U.S. Farm (approximately 20–25 per cent of revenue) has been weaker than expected, with elevated input costs leading to weaker farmers’ income, offset by a strong harvest,” he said. “Dealer inventory remained high through the harvest season. We are more cautious on the U.S. Farm outlook, with softness expected to persist near-term. Recall guidance of $300–310-million baked in some rebound in dealer inventory, which has not materialized. Canada and India remain solid, offset by the U.S., Brazil and Australia.
“Commercial. Project wins should bode well for 4Q24/2025. AFN won several large projects recently ($15–20-milion-plus), including its second government-backed storage project in India, several projects in the Middle East and two large wins in Brazil. The robust pipeline should support continued strength. The order book is net up year-over-year, with robust Commercial (especially International) offsetting Farm softness.”
To reflect “uncertainty around U.S. Farm,” Mr. Ho lowered his target for Ag Growth shares to $70 from $76, keeping a “buy” rating. The average is $75.75.
“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,” he said.