Ag Growth International Inc. (TSX: AFN) mainly operates and manufactures in Portable handling, permanent handling, storage and conditioning, livestock, and manufacturing sectors. Company has 33 manufacturing facilities and sales in to 95 countries. Major brands of the company are batco, wheatheart, grain guard, airlanco, westeel, frame, and entringer. It has work presence in Canada, United States, Italy, Brazil, and India.

Key highlights

• Completion of Acquisition of Eastern Fabricators: Company is pleased to announce that it has completed the acquisition of Eastern Fabricators by paying an upfront price of CAD 29.25 million upon closing plus the potential for an additional CAD 15.75 million on the achievements of financial targets in future years. The acquired company specializes in engineering, design, fabrication, and installation of high-quality stainless-steel equipment and systems for food processors.

• Business Segments and Platforms: Farm segment trade sales grew 11% YOY, respectively, for the quarter ended September 30, 2021, as company sees strong demand for both portable and permanent handling equipment. Further Company sees robust demand in Farm segment equipment as customers focus on securing critical products based on the increase in crop volumes. Also, Commercial segment trade sales grew 10% YOY for the quarter ended September 30, 2021, having strong presence in the U.S., Asia Pacific, and South American markets, signaling a strong outlook for Q4 2021 and Q1 2022. Technology segment trade sales increased 41% and 49% YOY for the quarter and nine-months ended September 30, 2021.

• Improvement in Cost and Inputs: The company is seeing ease in cost increment and improvement in input availability, that means margins will steadily improve in Q4 2021 and in the year 2022. Also, Company’s backlog has continued to grow in Q4 2021 and made record high levels making company ready for a strong Q4 2021 quarter and 2022.
  

Risks associated with investment           

Since, the company competes in a competitive market. Hence, it must adapt to and compete with rapid changes in demand supply, security risks, disruption of production, supply chain, and product delivery.  

Financial Overview of for the Period Ended September 2021 (In thousands of CAD, except share and per share amounts)

Source: Company’s Filing 

• The company has posted Sales of CAD 313.69 million in Q3 2021 as compared to CAD 281.41 million in Q3 2020, due to increase in farm business and technology business also crop volumes help to increase sales and as per company’s management these segments help company’s sales to grow more in coming quarters. Below is a chart of yearly trade sales to see the actual increase Y-o-Y.

Source: Company PPT

• The loss of the company has substantially come down to CAD 0.073 million in Q3 2021 as compared to loss of CAD 12.261 million, due to increase in gross margins, increase in sales and decrease in operating expenses percentage with respect to sales.

• On 17^th December 2021, The Company has announced the declaration of a cash dividend of CAD 0.15 per common share for the Q4 2021. The dividend is payable on January 14, 2022, to common shareholders. Company’s current annualized cash dividend rate is CAD 0.60 per share.

 Valuation Methodology (Illustrative) EV to EBITDA Based

Analysis by Kalkine Group

Stock recommendation

AGI's demand drivers are closely linked to crop production volumes, global grain movement, and global food. The core demand drivers are further augmented by increasing population, changing dietary trends and increased focus on food security infrastructure.

Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 33.09 as on 06^th January 2022.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

 Technical Summary Analysis

One-Year Price Chart (as on January 6, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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