Ag Growth International Inc. (TSX: AFN) manufactures portable and stationary grain handling, storage and conditioning equipment, including augers, belt conveyors, grain storage bins, grain handling accessories, grain aeration equipment and grain drying systems.

Key Updates:

• Reported higher Adjusted EBITDA: The company reported solid growth in its operating metrics and posted its Adjusted EBITDA of CAD 176.2 million during FY 21, which is 18% higher CAD 149.3 million in FY20. This was driven by strong performance from both the farm and commercial segments.

• Growth in farm backlog: The company has reported a 48% y-o-y growth in the farm backlog, as inventory levels remain low at many of the company’s dealers due to a strong crop yield across most of the parts in the U.S. and Brazil. Additionally, the company witnessed strong traction from the Commercial segment also and reported 47% y-o-y jump in backlog, aided by solid growth from Food platform segment.

• Positive technical: The stock of AFN is trading on an uptrend since December 2022 and has closed above its crucial support level of 50-days and 100-days simple moving averages, indicating a bullish pattern.

One-Year Technical Price Chart (as on March 14, 2022). Analysis by Kalkine Group 

FY21 Financial Highlights:

     FY21 Income Statement Highlights (Source: Company Report)

• AFN declared its full year results, wherein the company posted its sales of CAD 1,198.5 million, as compared to CAD 1,000.1 million in FY20. The improvement was due to higher income from the United States and International segments.
• Gross profit soared to CAD 304.0 million in FY21 from CAD 212.7 million in FY20, supported by higher revenue, partially offset by a higher cost of sales (CAD 894.5 million v/s CAD 787.3 million in FY20).
• The quarter witnessed higher selling, general and administrative costs combined with higher finance expense. Hence, the group reported its profit before income taxes to CAD 9.3 million, as compared to a loss of CAD 80.9 million in FY20.
• The company reported a net profit of CAD 10.5 million, as compared to a net loss of CAD 61.6 million in FY20. This was primarily due to a higher income before taxes, primarily offset by a lower income tax recovery amounting CAD 1.1 million which is lower than CAD 19.3 million in pcp.

Valuation Methodology (Illustrative): Price to Earnings-based

Analysis by Kalkine Group

Stock Recommendation:

Despite a sluggish economic scenario, the company reported a solid topline and bottom-line growth, which is encouraging. Moreover, Adjusted EBITDA margin in Q4FY21 stood at 14%, which is higher than 12% in pcp. This indicates improved cost metrics and is a key positive.

We have valued the stock using the P/E based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Methanex Corp, Exchange Income Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock the closing price of CAD 39.31 on March 14, 2022.

One-Year Technical Price Chart (as on March 14, 2022). Analysis by Kalkine Group

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