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Take a pass on Agrify Corp, says Roth

Roth Capital Partners analyst Scott Fortune is staying cautious on cannabis industry stock Agrify Corp (Agrify Stock Quote, Charts, News, Analysts, Financials NASDAQ:AGFY) after the company’s latest equity raise. In an update to client on Wednesday, Fortune maintained a “Neutral” rating while lowering his target from $0.90 to $0.35 per share, representing at press time a projected one-year return of 21 per cent.

Based in Billerica, Massachusetts, Agrify develops grow solutions (hardware and software) for indoor agriculture focusing on the cannabis industry. The company offers its Agrify Vertical Farming Units along with extraction equipment, SAAS under Agrify Insights, its Agrify Rapid Deployment Pack (RDP) and Total Turn-Key (TTK) customer solution.

Agrify announced on Tuesday the closing of its previously announced public offering of approx. 11.9 million shares and warrants to purchase another roughly 28.3 million shares, together bringing in $8.7 million in gross proceeds. Agrify said it will use the net proceeds for working capital and general corporate purposes including capex and debt repayment. (All figures in US dollars.)

Commenting on the event, Fortune said while seemingly necessary given the company’s inability to secure a financing partner for building out its TTK deals, the capital raise is nonetheless another highly dilutive transaction for investors to deal with. He said the public offering is likely to put more pressure on the stock over the near term, exacerbated by the challenging macro environment.

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“Management will continue to search for a potential financing or REIT partner to continue to monetize larger TTK contracts, but we do not anticipate meaningful progress on this front until either the financing environment improves or AGFY generates FCF to strengthen its credit profile,” Fortune wrote. 

“In the meantime, we expect the company to double down on its rapid deployment pack (RDP) offering, which requires much less upfront capital to install, while still building out the longer-term recurring SaaS opportunity. This progress should be offset by ongoing weakness within the extraction segment, with minimal SaaS margin contribution through the end of 2023,” he said.

Looking ahead, Fortune is forecasting Agrify to generate full 2022 revenue of $61.8 million and EBITDA of negative $67.2 million and full 2023 revenue of $48.3 million and EBITDA of negative $31.2 million.

Last month, Agrify released its third quarter 2022 financials, which featured revenue down 55.4 per cent year-over-year to $7.0 million and a net loss of $46.3 million.

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