Ag Growth Intl. Inc. (AFN–TSX), manufacturer of portable and stationary grain handling, storage and conditioning equipment, including augers, belt conveyors, storage bins, handling accessories and aeration equipment, has made sales in Ukraine. And that, for any investor, might make the company a bad bet.
After all, Ukraine is virtually broke. More ominously, it’s been battling Russia for months over control of Ukraine’s eastern territories.
But Ag Growth’s dealings in Ukraine don’t scare Bob Sewell. Mr. Sewell is president and CEO of Bellwether Investment Management, a boutique investment manager based in Oakville, Ont.
And he says most of Ag Growth’s sales in Ukraine are insured by Export Development Canada, a federal government Crown corporation.
But this guarantee is just one reason Mr. Sewell likes Ag Growth. He also likes the way its acquisitions have given its sales global heft. Ag Growth is a Winnipeg, Manitoba-headquartered company with manufacturing facilities in Canada, United States, United Kingdom and Finland.
And for Ag Growth, global sales are crucial, considering that in 2013, it sourced 26 per cent of its revenue outside North America.
Moreover, the more global its sales become, the more stable its earnings will be, suggests Mr. Sewell who sees Ag Growth benefiting over the short term from bumper crops worldwide.
Opportunity is short-term, but strategic
“You’ve got a short-term strategic opportunity,” says Mr. Sewell of the current outlook for the company.
“You’ve had record crops in North America and elsewhere in the world. And these guys are on the output side of the equation.”
In the meantime, Ag Growth is a bargain. For one thing, it now trades at a price-to-earnings ratio below its normal level, Mr. Sewell notes. In addition, Ag Growth trades at a significant discount to such U.S. peers as AGCO Corp. (AGCO–NYSE) and Deere & Co. (DE–NYSE).
And although Ag Growth is lightly capitalized, its volatility is comparatively low, Mr. Sewell says.
For Mr. Sewell, Ag Growth Intl. is a best buy. For the three months ended June 30, Ag Growth’s profit more than doubled to $13.6 million, or $0.98 a share, while its sales rose to $112.4 million from $93.9 million.
Not surprisingly, the company’s EBITDA (earnings before interest, taxes, depreciation and amortization) was also higher, jumping to $23.2 million from $16.7 million.
For the six months ended June 30, Ag Growth’s profit rose to $14.9 million or $1.11 a share, from $9.4 million, or $0.73 a share, for the similar period in 2013.
Sales were also higher, climbing to $198.6 million from $153.8 million, while EBITDA increased to $36.8 million from $24 million.
Investor’s Digest of Canada, MPL Communications Inc.
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Investor's Digest of Canada •10/6/14 •