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

Key highlights

• Issuance of Convertible Unsecured Subordinated Debentures: On March 29, 2022, the company announced to offer CAD 100 million of convertible unsecured subordinated debentures for CAD 1,000 per Debenture. The net proceeds from the offerings will be used to redeem the company's 4.5% of Convertible Unsecured Subordinated Debentures due on December 31, 2022, and for other general corporate purposes.

• Improved profitability margins: The company has improved on various profitability matrix during FY21 as compared to FY20, which is reflected below in the graphical presentation.

Source: Refinitiv, Analysis by Kalkine Group

• Improved Outlook: The group is expecting its adjusted EBITDA for FY22 to be around CAD 200 million which is much higher than the adjusted EBITDA of CAD 176.26 million in FY21. The increase of 24% (y-o-y) in its backlog as of March 27, 2022, accompanied by uplifted sales pipelines globally, is the foundation of the improved outlook for FY22.

Risks associated with investment

The risk the group is currently exposed to the macroeconomic situation which is under the threat from the rising interest rates and slowing down of economic growth. Various other risks that the business is facing comprise foreign exchange volatility, substantial movement in the commodity process, timing and weather conditions of harvests, etc.  

Financial overview of FY21 (Expressed in thousands of CAD)

 Source: Company Filing

• For FY21 the company reported an increase in its total revenues to CAD 1,198.52 million as compared to CAD 1,000.13 million in the FY20.

• The gross profit managed to increase during FY21 to CAD 304.01 million vs CAD 212.79 million in FY20. The impact of higher revenues was partially offset by the increased cost of goods sold  in FY21 at CAD 894.50 million vs CAD 787.34 million in FY20.

• The profit before taxes for FY21 was reported at CAD 9.38 million where as the FY20 witnessed the loss before income tax of 80.96 million.

• For FY21 the company reported net profits of CAD 10.55 million as compared to the loss in FY20 of CAD 61.64 million.

Valuation Methodology (Illustrative): Price to Earnings value-based Multiple

Analysis by Kalkine Group

Stock recommendation 

The company reported an increase in its adjusted EBITDA to CAD 176.26 million in FY21 as compared to CAD 149.32 million in FY20. Further, the FY21 ended on a positive note with a profit of CAD 10.55 million vs the loss of CAD 61.64 million in FY20. The stronger outlook with a higher adjusted EBITDA projection of CAD 200 million in FY22, is also a key positive for the company. On the valuation front, the stock is measured on the Price to Earnings values-based multiple and currently trading at 11.4x which is lower than the industry median (Industrials) of 14.8x, implying the stock still has enough headroom to match its peers. We have considered Superior Plus Corp, Titan International Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing market price of CAD 39.64 on April 8, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 8, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.