Ag Growth is a Buy, says Desjardins

Ag Growth International (Ag Growth International Stock Quote, Charts, News, Analysts, Financials TSX:AFN) has had a great start to the year, with its share price currently up by about a third since Jan 1. 

But investors should expect more upside to come, according to Desjardins Capital Markets analyst Gary Ho, who delivered a report on Wednesday where he reiterated a “Buy” rating on the stock. 

Ho recently paid a site visit to tour AGI’s Hi Roller enclosed belt conveyor facility in Sioux Falls, South Dakota, saying he was positively surprised by the “structured process” methodology coming from AGI’s senior leadership team. Ho said management has set internal three-year targets with concrete deliverables assigned to key managers and accompanied by monthly actual-to-budget reviews with the CEO and business unit heads.

“We came away with higher conviction that AFN will hit its near/medium-term targets, including profitable organic growth and margin improvements,” said Ho.

Ag Growth is a manufacturer of food infrastructure systems for seed, fertilizer, feed and food processing, with facilities in Canada, the US, Brazil, India, France and Italy.

Ho said the company’s enclosed belt conveyor system is the largest contributor to AGI’s North American Commercial (NAC) revenue and that the product was transferred to Brazil a few years ago to major success.

“Management has mapped out detailed market share by region, customer type and product category to identify product gaps and growth opportunities (not done to the same extent under prior management). AFN NAC has a low-double-digit market share in a $1.7 billion total addressable market, with plenty of room to grow,” Ho said.

By the numbers, Ho is expecting Ag Growth’s revenue to go from $1.5 billion in 2022 to $1.6 billion in 2023 and to $1.8 billion in 2024, while adjusted EBITDA is forecast to move from $235 million in 2022 to $272 million in 2023 and to $297 in 2024.

With his “Buy” rating, Ho maintained a 12-month target of $74.00, which at press time represented a potential return of 26.3 per cent.

“AFN is entering a new era with three key areas of focus—profitable organic growth, operational excellence and balance sheet discipline. Our positive investment thesis is predicated on: (1) broad-based growth across segments and regions; (2) margin expansion through operational excellence; (3) deleveraging; and (4) a step-up in organic growth through product transfers and other initiatives,” Ho said.