The Lack of Recovery is Concerning…

AG Growth International is a global food infrastructure and equipment manufacturing company engaging in planning, engineering, and manufacturing across five platforms – seed, fertilizer, grain, feed, and food. The company caters to the farms and commercial applications and supplies them with storage, conditioning, handling, processing, and control applications for agricultural inputs around the world.

The company derives nearly 35% of its total revenues from Canada, more than 40% from the US, and the balance from various international markets including Brazil and LATAM, Europe, Middle East, and Africa, India and SE Asia, Australia, and NZ.

As a global leader in supplying the world’s food infrastructure, AG Growth has developed successful partnerships with customers on six continents. The company’s 35 brands rank amongst the most recognized equipment manufacturers in the global agriculture industry. AG Growth is known for delivering market-leading solutions to its customers. It operates in all grain production and consumption markets globally.

Investment Data

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Revenue Growth & Market Exposure

AG Growth supplies a variety of equipment solutions to customers around the world. AG Growth’s total revenue can be broadly categorized into the farm (50% of total revenues) and commercial (50%) revenues. AGI’s Commercial business also has a large global footprint. The company has broadened its perspective from farm equipment to food infrastructure. It provides solutions for each stage of the food production cycle except the plant, protection, and harvest stage.

AG Growth has over 160 years of combined history. The company has come a long way from just being a manufacturer of portable grain handling equipment to becoming a leading supplier to the global food infrastructure. It is in a good position to benefit from growing food demand all around the world, supporting the movement and processing of hundreds of millions of tons of fertilizer, seed, chemicals, and grains, daily. AGI is trusted for its consistency and quality products. Over the past three years, AGI developed the Hopper as an extension of its storage product line, in response to market demand.

The company’s international backlog is strong. It has successfully grown its foreign footprint in North America, South America, Europe, Africa, and Asia. Today, the company sells in more than 100 countries from just 10 back in 2014.

COVID-19 had a material impact on AG’s North American Commercial markets as customers had to delay projects and faced challenges. The company, however, witnessed a robust performance in North American Farm markets, EMEA, Brazil, and India. AGI’s 5-6-7 strategy to provide system solutions across five platforms, six continents, and seven components also led to diversification in terms of products, geographies, and customers. The company increased automation and inventory at SureTrack to reduce lead times for customers. Its 2.0 version is also expected to drive continued growth. The pace of revenue growth has accelerated to 23% CAGR in the last three years.

Dividends

AG pays monthly dividends and has a history of paying dividends for a long time. The company, however, had to reduce its dividend to an annual level of $0.60 from $2.40 per share earlier, and also moved the dividend from monthly to quarterly payments in April. It paid $16.8 million in dividends for the nine-month period ended September. The company sports an annual average dividend yield of 2.1% but a very high payout ratio. It last raised its dividend at a rate of 1.6% CAGR over the last decade.

AG Growth is making smart acquisitions to further grow its equipment manufacturing base and other hardware and software solutions in the food and beverage industry. These acquisitions also evolve AGI’s ability to provide complete solutions to a broad customer base. Few such acquisitions during the year included that of Affinity, IntelliFarms, and Milltec.

Agriculture offers a wide potential for technology adoption and future growth. Today the need for sophisticated collection and application of farm data and information is immense. The company has been expanding into new platforms, new products, new services, and new markets each year. It is focusing on a deep integration of its products, services, engineering, systems, product and data management, and capacity expansions to deliver an enhanced customer experience. AG should gain from the growing demand for food, leveraging its leading market position in the food industry. Management expects adjusted EBITDA in the second half of 2020 to exceed 2019 results. Its farm backlogs were also higher than the prior year.

Competition

AG Growth operates in the food infrastructure industry which is a recession-proof business. The company competes with the likes of Adams Fertilizer Equipment which is an international fertilizer equipment manufacturer. It produces machinery that is used in agriculture, poultry, and turf industries.

Bottom Line

AG Growth provides critical facilities and operations to maintain, grow, and improve capacity to ensure global food security. The company expects a rebound in commercial activity and in Canada post-COVID-19 as customers resume operations. Milltec, SEA, Brazil, EMEA are well-positioned for long-term growth. AG Growth is well-positioned to grow the AgTech space. Robust investments in new businesses, technologies, and markets should further support future revenue and dividend growth.

However, investors are now waiting to see how it plays out. Invest with caution