Ag Growth International Inc

Ag Growth International Inc (TSX: AFN) is a leading provider of equipment solutions for agriculture bulk commodities including portable and stationary grain handling, storage and conditioning equipment, belt conveyors, grain storage bins, grain handling accessories, grain aeration equipment and grain drying systems. It has manufacturing facilities in Canada, the United States, Italy, Brazil, and the United Kingdom. Western Canada region generates most of the company's revenue.

Key highlights

• Delivering sustainable growth: The Company maintained its pace and witnessed a spirited performance from all segments of the business in Q1 2021, where revenue surged by 11.8% to CAD 256 million on a YoY basis, while Adjusted EBITDA improved by 52.1% to CAD 39.1 million against CAD 25.7 million in the previous corresponding period. The Company’s continuous growth in revenue and Adjusted EBITDA is supported by healthy demand and a substantial backlog.

• Firm order backlog: Order intake is still strong, with excellent backlogs indicating that sales growth is on track. This is a sign of the company's business model's newfound resiliency. On a year-over-year basis, the company's farm backlog increased by 75%. Customers' emphasis has resulted in a surge in demand for farm equipment. As of March 31, 2021, the Commercial segment's backlog was up 17% year over year, resulting in a 40% increase in overall backlog.

Source: Company

• Improving macros would support future growth: Crop quantities, crop prices, and trade flow are trending upwards, indicating that global macroeconomic circumstances are improving. While crop volumes, trading procedures, and consumption levels are more intimately tied to the company’s demand drivers, the present agricultural pricing situation provides a positive tailwind for its markets. Favorable farm-level conditions in North America would continue to drive demand for its products.
  

Financial overview of Q1 2021 in thousands of CAD

Source: Company

• The Company posted an increase in net sales by 10.7% to CAD 253.7 million, compared to CAD 229.1 million in Q1 2020. The growth was driven by healthy sales performance from all segments, primarily farm segment and commercial platform in all the geographies, partially offset by the Canada region.
• The Company posted a higher gross profit at CAD 76.0 million in Q1 2021, compared to CAD 61.2 million in pcp, on the back of higher revenue.
• Profit before income tax stood at CAD 18.1 million, against a loss of CAD 57.5 million in pcp. Lower operating expenses mainly supported the improved picture.
• The Company recorded a net income of CAD 12.7 million in Q1 2021, compared to a net loss of CAD 48.8 million in the previous corresponding period, due to the above-stated reason.
  

Risks associated with investment

In the near-term, the rise in steel, component, packaging, and freight costs would pressure the gross margin of the segment. While cost increases can be passed onto customers in many instances, the meteoric rise in steel costs would impact the company’s Q2 and Q3 2021 margins.

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

First-quarter 2021 results include strong contributions from all business segments with consolidated trade sales and adjusted EBITDA up 12% and 52% on YOY basis, respectively. The company is continuously recognizing the benefits of its diversification into new markets and new products. Furthermore, despite the challenges of rising steel price, component, packaging, and freight costs, the company expects strong full-year trade sales and adjusted EBITDA above the FY20 levels. Additionally, the order intake continues to be robust with solid backlogs, providing good visibility to sales growth. It's a signal of the resilience now embedded in the company’s business model. Based on Technical Analysis, the stock has support at CAD 32.0 level. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 39.61 on June 09, 2021. We have considered Superior Plus Corp, Savaria Corp, Nutrien Ltd, etc., as the comparison's peer group.

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

One-Year Price Chart (as on June 09, 2021). Source: Analysis by Kalkine Group

Wishpond Technologies Ltd

Wishpond Technologies Ltd (TSXV: WISH) is a provider of marketing-focused online business solutions providing digital marketing solutions that empower entrepreneurs to achieve success online. The company offers an all-in-one marketing suite that provides companies with marketing, promotion, lead generation, and sales conversion capabilities from one integrated platform.

Key highlights 

• Made strategic acquisitions:To accelerate growth, the firm made two significant acquisitions of marketing and sales technology firms, having recurring-revenue models. It acquired “Invigo Media Corp.” based in Surrey, BC, which is a profitable and growing marketing technology and services company primarily focused on serving medical clinics. Over the last six months, Invigo has achieved an annualized revenue run-rate of approximately CAD 2.7 million and EBITDA margins exceeding 20%. The other acquisition is California based “PersistIQ”, which provides sales engagement technologies. It holds a base of approximately 800 clients and has generated recurring revenue of USD 1.1 million with EBITDA margins of about 20% in 2020. As a result, significant cross-selling opportunities and new customer segments would be made available to Wishpond.
  

• Announces NCIB: Recently, the company received approval from the TSX Venture Exchange to purchase up to 2.59 million shares during the 12 months commencing June 11, 2021. The intention to buy the shares reflects the confidence and optimism of the management in the business as they feel to increase their stake.

• Breakout on Daily Price Chart: Recently, the stock price broke out the 21-day SMA resistance level on daily price chart, which supports a bullish bias. A breakout of 21 period SMA reflects that the stock is likely to move up in the near term. Also, RSI (14 day) is trading at 52.05, which is supporting the bullish momentum. Moreover, the stock is taking support at the downward sloping trend line continuously and sustaining above it.
  

• Record revenue growth: Despite the turbulent year of 2020, the Company maintained its momentum and had a strong success in its revenue. The Company is always working closely with customers, and as a result, its presence is growing in tandem with volume, which is commendable. Compared to the previous similar period, the Company's sales increased by 74% to CAD 2.9 million in the reporting period.

Source: Company 

Financial overview of Q1 2021 (Expressed in Canadian Dollars)

Source: Company 

• In Q1 2021, the company achieved a record quarterly revenue of CAD 2.8 million compared to CAD 1.6 million in Q1 2020. An increase of 74% in revenue was mainly due to acquisitions made by the company.
• On the back of higher revenue, it clocked a gross profit of CAD 1.7 million, against CAD 1.0 million in the previous corresponding period.
• The company registered higher operating expenses in the reported period, which stood at CAD 2.8 million v/s CAD 1.1 million in pcp; thus, its operating loss increased to CAD 1.0 million against CAD 0.1 million in pcp.
• Net loss stood at CAD 1.1 million in Q1 2021, compared to CAD 0.17 million in pcp.
  

Risks associated with investment

To stay competitive, the corporation must create new software products or features and improve its present marketing services. The company's business and operational performance would suffer if it failed to position and/or price its items to satisfy market demand. Low trading volume can also enhance the price volatility of the company's stock. 

Stock recommendation

The first full quarter after being a publicly traded business, Q1 2021, was a watershed moment for the corporation. It produced record revenue and completed two acquisitions during the quarter. The excellent results were fueled by significant organic growth in the quarter as well as contributions from the Invigo and PersistIQ acquisitions. In addition, despite foreign exchange headwinds from a lower US dollar, the firm is on course to deliver significant organic growth in Q2-2021, fueled by greater capacity in the Company's sales force, positive contribution from acquisitions, and new product related revenues. It also plans to boost its Monthly Recurring Revenue (MRR) through organic growth and acquisitions, which is a big plus. However, we had limited financial information as the company got recently listed. Furthermore, on the valuation front, the stock is available at a forward EV/Sales multiple of 4.92x against an industry (Software & IT Services) mean of 8.0x. Moreover, the stock recorded a breakout on daily technical price chart, which suggest a bullish momentum in the stock. Based on technical analysis, the stock has support at CAD 1.3 level. Hence, considering the aforesaid rationale, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 1.59 on June 09, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock if the price closes below the support level (indicative stop-loss price). 

One-Year Price Chart (as on June 09, 2021). Source: Analysis by Kalkine Group

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

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.