This Industrial Got Ahead of Itself…

AG Growth International is a global food 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 controls applications for agricultural inputs around the world.

The company derives nearly 35% of its total revenues from Canada, 40% from the US, and the balance from various international markets.

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

Revenue Growth & Market Exposure

AG Growth’s total revenue can be broadly categorized into 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, protect, 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, chemical, and grains, daily. AGI is trusted for its consistency and quality products.

The company’s international backlog is strong. It has successfully grown its foreign footprint in North America, South America, Europe, and Africa in 2018, and Asia in 2019. Today, the company sells in more than 100 countries from just 10 back in 2014.

The pace of revenue growth has accelerated to 31% CAGR in the last three years. AG Growth is positioned to enter 2020 on solid footing. There is a strong expectation that U.S. farmers will plant a record amount of corn acres in 2020, which should drive the demand for portable grain handling and storage systems. The Indian platform acquisition should also act as a strong tailwind due to increased market development and synergies with other AGI divisions.

Dividends

AG pays monthly dividends and has a history of paying dividends for a long time. The company sports an attractive annual average dividend yield of 5.5% but a very high payout ratio. 

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 Improtech, IntelliFarms, and Milltec.

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 registered a 24% increase in trade sales and a 22% growth in adjusted EBITDA in the last year. Robust investments in new businesses, technologies and markets should help maintain the dividend.

However, the growth is unknown and that’s what is holding back the stock price. The metrics I look at are not painting a good picture with a P/E of 84 and no dividend growth over the past years doesn’t make this stock a dividend growth stocks or even a stable income stock.

The revenue growth and the dividend growth have no correlation and the valuation is not matching the revenue growth either. The company IPO’d in 2004 so it’s a fairly recent company and is paying a monthly yield which is very unusual for an industrial stock. The pattern of the business, the stock valuation and the dividends do not line up and I worry it will need a bigger adjustment for stock appreciation. This stock is a pass.

Join 6,600+ Investors & Build a Winning Portfolio