AFN stock keeps “Buy” rating at Desjardins

Following the company’s third quarter results, Desjardins analyst Gary Ho has maintained his “Buy” rating on AG Growth International (AG Growth International Stock Quote, Chart, News, Analysts, Financials TSX:AFN)

On November 7, AG Growth reported its Q3, 2023 results. The company posted Adjusted EBITDA of $85.0-million on revenue of $410-million, a topline that was up 2% over the same period last year.

“Our third quarter performance again delivered strong margins and continued progress against our stated strategic priorities,” CEO Paul Householder said. “Our company-wide operational excellence initiatives gained additional traction and have steadily translated into a clear positive trend in our margin performance. As our new business management processes become further ingrained in our teams and culture, we expect this new level of margin performance to be sustained and expanded upon over the long-term. As a result, we have again raised our full year Adjusted EBITDA margin guidance to 18.5% from 18.0%, up notably from our originally stated 2023 objective of 17.0%. Heading into the fourth quarter and early 2024, we are committed to complementing our new margin levels with continued revenue growth which will unlock significant value for all stakeholders.”

Ho says there was a lot to like about the quarter.

“AFN delivered a slight 3Q beat but, more importantly, maintained 2023 guidance while raising its margin expectation to 18.5%+. International shone through, particularly Brazil. Constructive comments on sustainability of growth/margins into 4Q and 2024 should calm skeptics. Numerous operational initiatives in place should drive 2024 growth potential while leverage should reach 2.5x by mid-2024, at which point there is optionality for organic investments.”

In a research update to clients November 8, Ho maintained his “Buy” rating and one-year price target of $82.00 on AFN, implying a return of 61.8 per cent at the time of publication.

The analyst thinks the company will post Adjusted EBITDA of $310-million on revenue of $1.7-billion in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $333-million on a topline of $1.8-billion the following year.

“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,” the analyst concluded.