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.

Key highlights

• Improving macros would support future growth: Crop yields, prices, and trade flow are all increasing, indicating that global macroeconomic conditions are strengthening. While the company's demand drivers are more closely linked to crop numbers, trade procedures, and consumption levels, the current agricultural pricing scenario provides a good tailwind for its markets. Favorable farm-level conditions in North America would continue to drive demand for its products.

• Delivering sustainable growth: In Q3 2021, the Company continued its momentum, with sales increasing by 11.0% to CAD 313.85 million on a year-over-year basis. The Company’s continuous growth in revenue is supported by healthy demand and a substantial backlog.

Source: Company Presentation

• Resilient performance from each segment and geography: The company's business has showed some resiliency across all segments and geographies, with revenues increasing at a solid rate. On a quarterly basis, its agricultural business grew by 11 percent to CAD 173.2 million, while other divisions also performed well. Although sales in the Canadian area fell by 1%, the US and foreign markets grew at a respectable rate.
  

 Source: Company Presentation

• Firm order backlog: Order intake continues to be high, with excellent backlogs indicating that sales are on pace. This demonstrates the company's newfound resilience in terms of its business strategy. The company's agricultural backlog has risen by 202% year over year. Customers' emphasis has resulted in a surge in demand for farm equipment. As on November 10, 2021, the total commercial segment's backlog was up 76% year over year, resulting in a 99% increase in overall backlog.

Source: Company’s Reports 

Financial overview of Q3 2021 (Expressed in 000 of CAD)

Source: Company’s Reports

• The Company posted an increase in net sales by 11% to CAD 313.6 million, compared to CAD 281.4 million in Q3 2020, mainly due to 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 85.5 million in Q3 2021, compared to CAD 46.85 million in pcp, on the back of higher revenue.
• Loss before income tax stood at CAD 3.22 million, against loss of CAD 18.77 million in pcp.
• The Company recorded a net loss of CAD 0.073 million in Q3 2021, compared to loss of CAD 12.26 million in the previous corresponding period.
  

Risks associated with investment

In the near-term, the rise of steel, component, packaging, and freight costs will 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 Q4 2021 margins.

Valuation Methodology (Illustrative): EV/ EBITDA

Stock recommendation

The company expected to benefit from its recent expansion and diversification. Despite severe supply chain challenges throughout the world, the company had a good quarter because to broad-based growth and market share increases across Brazil, India, the United States Farm, its Technology division, and the Food platform. We believe the company is well positioned for a good end to 2021 and moving beyond, with record backlogs throughout the industry, up 99% over last year. Furthermore, despite the challenges of rising steel price, component, packaging, and freight costs, the company expects strong full-year trade sales above the FY 2020 levels. Therefore, based on the above rationale and valuation, we have given a "Speculative Buy" rating at the closing price of CAD 33.74 on December 07, 2021. We have considered Nutrien Ltd, Savaria Corp, Superior Plus Corp, 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.

Technical Summary Analysis

One-Year Technical Price Chart (as on December 7, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Canfor Pulp Products Inc.

Canfor Pulp Products Inc. (TSX: CFX), together with its subsidiaries, produces and supplies pulp and paper products in Canada, Europe, Asia, the United States, and internationally.

Key Highlights

• Reported Strong Q3FY21 on YoY basis: In Q3FY21, the company’s reported higher revenue at CAD 298.9 million, compared to CAD 226.4 million in the previous corresponding period. Strong topline performance was driven by a substantial increase in average NBSK pulp unit sales realizations, as a notable uptick in demand and US-dollar pulp list pricing significantly outweighed the stronger Canadian dollar in the current period. The company also made a net profit of CAD 12.1 million compared to a loss of CAD 18.1 million in the same quarter of the previous financial year.

• Hovering near crucial support level: CFX shares are hovering near crucial support level of CAD 5.92. In the past three months stock has taken multiple support at this level, indicates that CAD 5.92 is acting as crucial demand zone in the stock.

Technical price chart (as on December 07, 20210. Source: REFINITIV, Analysis by Kalkine Group 

Financial Highlights: Q3FY21

Source: Company’s Filing

• In Q3 2021, the company posted revenue stood at CAD 298.9 million compared to CAD 226.4 million in the previous corresponding period
• Operating expenses for the reported period rose to CAD 283.1 million compared to CAD 254.0 million in pcp.
• On the back of robust revenue, the company’s operating income saw a substantial jump to CAD 15.8 million against a loss of CAD 27.6 million in pcp.
• Net income also rose to CAD 12.1 million against a loss of CAD 18.1 million in pcp, partially offset by higher income tax expense.

Risks associated with investment: The company is exposed of variety of risks ranging from lower demand offtake for the company’s product, supply chain related on the back of resurgence in COVID-19 cases and other macro-economic risks

Valuation Methodology (Illustrative): EV to EBITDA-based multiple

Stock recommendation

The company reported solid financial results in the third quarter (YoY) despite the growing pressures on global pulp market fundamentals, lower production volumes, which reflected its previously announced scheduled and unscheduled downtime, as well as significant supply chain challenges. Additionally, the company is focused on increasing its productivity going forward, which will be a key positive. Moreover, the stock is trading near crucial support level. Therefore, based on the above rationale and valuation done, we recommend a “Speculative buy” rating on CFX stock at the closing price of CAD 6.07 as on December 07, 2021.

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

Technical Analysis Summary

1-Year Technical Price Chart (as on December 07, 2021). Source: REFINITIV, 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.