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On today’s TSX Breakouts report, there are 49 stocks on the positive breakouts list (stocks with positive price momentum), and 38 stock are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that may appear on the positive breakouts list later this year, especially given management bullish outlook for the second half of 2019. Year-to-date, the stock price has rallied 18 per cent with a further 30 per cent gain anticipated by analysts over the next 12 months. The company offers its shareholders an attractive dividend yield, currently over 4 per cent, and has a conservative payout ratio. The security highlighted today is AG Growth International Inc. (AFN-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Winnipeg-based AG Growth manufactures agricultural equipment used for grain handling and storage such as grain storage bins, augers and belt conveyors. The company has manufacturing operations in seven regions: Canada, the United States, the United Kingdom, Brazil, France, India and Italy. In 2018, the geographical sales breakdown was as follows, approximately 35 per cent of sales came from Canada, 41 per cent from the U.S., and 24 per cent came from international regions.

Before the market opened on May 7, the company reported first-quarter financial results that were shy of expectations, which sent the share price declining 2.5 per cent that day. On the earnings call, the president and chief executive officer Tim Close remarked, “A late winter and generally slow pace in commercial project development colluded to push some sales and activity out of the first quarter.”The company reported sales of $216-million, below the consensus estimate of $228-million. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $30.6-million, relatively unchanged year-over-year and below the Street’s expectations of $31-million. Adjusted earnings per share came in at 27 cents, well below the consensus estimate of 50 cents. Organic, or internal, sales growth in Canada was 4 per cent year-over-year and in the U.S. was 6 per cent year-over-year. However, organic international sales declined 28 per cent year-over-year, which the company attributed largely to timing issues (project delays).

During the first quarter, the company completed three acquisitions. In January, the company announced the acquisition of Toronto-based, Improtech Ltd. In March, AGI acquired Missouri, USA-based IntelliFarms LLC as well as India-based Milltec Machinery Ltd. Milltec is a manufacturer of rice milling and processing equipment with four production plants in India. The purchase of Milltec is expected to smooth the AFN’s seasonality; AFN has historically reported the highest sales in the second and third quarters but Milltec’s strongest quarters are the first and fourth quarters, accounting for roughly 70 per cent of sales. Milltec’s sales for the 12-month period ending Jan., 31, 2019 totaled $56-million and EBITDA was $10-million.

Management provided a positive sales outlook, particularly for the second half of the year, supported by a strong backlog. In the earnings release, Tim Close stated, “Heading into Q2 (the second quarter) and H2 2019 (the second half of 2019), our outlook across AGI is positive with healthy backlogs in key businesses.” On the earnings call, the chief financial officer Steve Sommerfeld noted, “U.S. farmers have underinvested in storage in the last three, four years. All the while, crop volumes remained very high and are increasing… with low commodity prices, farmers are incentivized to sit on the grain until they feel there are no better opportunities in the future. So today the bins are relatively full and farmers require storage and we expect that to be a positive demand driver for the near future.” Furthermore, China’s ban on $2-billion worth of canola imports from Canada could also add to higher storage demand, although no impact has been noted by management.

When asked on the earnings call about the potential impact on inventory levels given volatility in commodity prices and trade disputes with China, the CFO Steve Sommerfeld stated, “I would say they are where we would want to be this time of year. We had a good intake in Q1 (first quarter) and a very good backlog heading into Q2 (second quarter). I don't believe farmer competence has eroded in the last several months. I think it is consistent to where it was in the back half of 2018… the Canadian farmer economics and the canola issue with initiatives to the farmers in Canada, I don't want to minimize the impact of it, but we don't believe it'll have a significant impact on AGI. The farmers will grow a crop and we are somewhat agnostic to the type of crop they grow in Canada. In the U.S., the farmer economics obviously are positive, however, as we have said consistently throughout the history of AGI, we're a volume story and…we expect another large crop in the U.S.”

The company is expected to release its second-quarter financial results in early August. The Street is anticipating the company to report sales of $295-million, EBITDA of $51.6-million and earnings per share of $1.16.

Dividend policy

The company pays shareholders a monthly dividend of 20 cents per share or $2.40 per share yearly. This equates to a current annualized yield of 4.3 per cent. The dividend has been maintained at this level since its December 2010 payment.

Last quarter, the payout ratio was 60 per cent and the payout ratio for the trailing 12 months was 44 per cent. In 2018, the payout ratio was 42 per cent.

Analysts’ recommendations

This small-cap industrials stock with a market capitalization of just over $1-million is covered by eight analysts and all eight analysts have buy recommendations.

The firms providing research coverage on the stock are as follows in alphabetical order: CIBC World Markets, Cormark Securities, Desjardins Securities, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, and TD Securities.

Revised recommendations

In May, Kyle McPhee, an analyst at Cormark Securities, reduced his target price to $75 from $80.

Financial forecasts

The Street is forecasting sales of $1.06-billion in 2019, rising to $1.18-billion in 2020. The consensus EBITDA estimates are $171-million in 2019, rising over 14 per cent to $196-million the following year. The consensus earnings per share estimate is $3.26 in 2019, increasing 24 per cent to $4.05 in 2020.

Financial forecasts have increased, especially for 2020. For instance, four months ago, the consensus EBITDA estimates were $167-million for 2019 and $182-million for 2020.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 8.3 times the 2020 consensus estimate, below its three-year historical average multiple of 9.1 times and below its peak multiple of roughly 10 times during this period.

The average one-year target price is $72, implying the share price has approximately 30 per cent upside potential over the next 12 months. Individual target prices range from a low of $65 (from Andrew Wong, the analyst at RBC Dominion Securities) to a high of $79 (from Damir Gunja, an analyst at TD Securities). Individual target prices are as follows in numerical order: $65, $67, $70, two at $71, $75, $78 and $79.

Insider transaction activity

Year-to-date, there has not been any buying or selling activity in the public market reported by insiders.

Chart watch

Since late 2016, the share price has traded largely between $50 and $60.

Looking at key resistance and support levels, the stock has major overhead resistance between $62.50 and $64, near its record closing high of $63.99 set back in October 2018. Looking at the downside, there is strong technical support around $50.

Trading volume in this small-cap stock can be low, which can create volatility in the share price. The three-month historical daily average trading volume is approximately 107,000 shares.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Positive BreakoutsJune 14 close
AGI-TAlamos Gold Inc $7.28
AQN-TAlgonquin Power & Utilities Corp $16.32
AIF-TAltus Group Ltd $31.54
ADW/A-TAndrew Peller Ltd $13.86
AX-UN-TArtis Real Estate Investment Trust $11.98
ABX-TBarrick Gold Corp $18.66
BLU-TBELLUS Health Inc. $1.97
BLX-TBoralex Inc $19.58
BEP-UN-TBrookfield Renewable Energy Partners LP $45.05
CAS-TCascades Inc $10.14
CCL-B-TCCL Industries Inc $64.22
CG-TCenterra Gold Inc $8.49
GIB/A-TCGI Group Inc $102.27
CSH-UN-TChartwell Retirement Residences $15.37
CHR-TChorus Aviation Inc $7.82
CVG-TClairvest Group Inc. $50.00
CNL-TContinental Gold Inc $3.03
CRT-UN-TCT Real Estate Investment Trust $14.50
DGC-TDetour Gold Corp $14.11
DIR-UN-TDream Industrial REIT $12.30
EMP-A-TEmpire Co Ltd $31.84
ERO-TEro Copper Corp. $19.37
FCR-TFirst Capital Realty Inc $22.21
FN-TFirst National Financial Corp $32.17
FSV-TFirstService Corp $129.65
FTS-TFortis Inc $52.15
GIL-TGildan Activewear Inc $52.02
GWR-TGlobal Water Resources Inc. $13.99
GSY-Tgoeasy Ltd $52.43
GCM-TGran Colombia Gold Corp. $4.51
HBC-THudson's Bay Co $9.66
IFC-TIntact Financial Corp $120.31
KXS-TKinaxis Inc $84.23
LB-TLaurentian Bank of Canada $45.08
LUG-TLundin Gold Inc $5.98
MSI-TMorneau Shepell Inc $30.54
MTY-TMTY Food Group Inc. $64.13
NFI-TNew Flyer Industries Inc $37.90
NWC-TNorth West Co Inc $31.31
NWH-UN-TNorthWest Healthcare Properties REIT $12.30
NG-TNovagold Resources Inc $6.00
OTEX-TOpen Text Corp $55.36
PBH-TPremium Brands Holdings Corp $90.87
REAL-TReal Matters $6.84
RBA-TRitchie Bros Auctioneers Inc $47.83
SII-TSprott Inc $3.12
TRZ-TTransat AT Inc $13.44
TMQ-TTrilogy Metals Inc. $3.80
WDO-TWesdome Gold Mines Ltd. $5.22
Negative Breakouts
AAV-TAdvantage Oil & Gas Ltd $1.63
ATH-TAthabasca Oil Corp $0.71
BIR-TBirchcliff Energy Ltd $2.71
BNE-TBonterra Energy Corp $5.07
OH-TCannaRoyalty Corp. $7.95
CJ-TCardinal Energy Ltd $2.24
CWEB-TCharlotte's Web Holdings Inc. $14.84
KBLT-TCobalt 27 Capital Corp. $3.45
CURA-TCuraleaf Holdings Inc. $9.42
EMH-TEmerald Health Therapeutics Inc. $2.86
ECA-TEncana Corp $6.25
ERF-TEnerplus Corp $8.81
ESI-TEnsign Energy Services Inc $4.74
HARV-THarvest Health & Recreation Inc. $7.81
HEXO-THEXO Corp. $7.52
IPL-TInter Pipeline Ltd $19.96
KEL-TKelt Exploration Ltd $3.79
MDI-TMajor Drilling Group International Inc $3.90
NOA-TNorth American Construction Group Ltd. $13.81
ORL-TOrocobre Ltd. $2.89
POU-TParamount Resources Ltd $5.92
PIPE-TPipestone Energy Corp. $1.44
PSK-TPrairieSky Royalty Ltd $17.32
RFP-TResolute Forest Products Inc. $8.12
RVX-TResverlogix Corp $2.82
SES-TSecure Energy Services Inc $6.74
VII-TSeven Generations Energy Ltd $6.34
SJR-B-TShaw Communications Inc $26.67
SMT-TSierra Metals Inc $1.65
SW-TSierra Wireless Inc $15.93
SOX-TStuart Olson Inc $3.39
SGY-TSurge Energy Inc $1.11
T-TTELUS Corp $48.60
TGOD-TThe Green Organic Dutchman Holdings Ltd. $3.25
TOT-TTotal Energy Services Inc $8.18
TOU-TTourmaline Oil Corp $15.56
TCW-TTrican Well Service Ltd $1.12
YGR-TYangarra Resources Ltd. $2.11

Source: Bloomberg

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:15pm EDT.

SymbolName% changeLast
AFN-T
Ag Growth International Inc
-1.24%61.36

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