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Ag Growth forecasts 'higher demand' for farm equipment

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Shares in Ag Growth International soared 12% after the maker of grain silos and handling equipment unveiled a smaller drop in profit than feared, and forecast a revival in the farm equipment demand.

Shares in the Canadian-based group touched Can$31.29 in Toronto, before easing in lunchtime deals to stand at Can$29.68 in afternoon deals, a gain of 6.9% on the day.

The rally followed the group's announcement of results for the October-to-December quarter which showed underlying earnings of Can$2.15m, excluding a Can$9.0m foreign exchange loss and a $13.4m downgrade to the value of some livestock and Finnish assets.

The result, while down 42%, was well ahead of the Can$760,000 figure that investors had expected.

And Ag Growth International forecast that while its results for the first three months of 2016 would be held back by "low farm demand in North America", expected to lead to flat earnings before interest, taxation, depreciation and amortisation (ebitda) for the quarter, better times lay ahead.

'Improved demand environment'

The group flagged boosts from the prospect of a rebound in US corn sowings this year, forecast by officials rising by some 2m acres to 90m acres, implying a bigger harvest to store.

Meanwhile, net income has, "after a steep drop in 2015", stabilised among US farmers - who were as of December 1 still estimated to be holding roughly half of their harvest on-farm.

Such dynamics provide "an improved demand environment", the group said.

"Based on current conditions, management anticipates increased demand to appear with the new crop season.

"Existing indicators point towards higher demand for farm equipment in fiscal 2016 compared to 2015."

International expansion

Ag Growth announced a 33% rise to Can$112.2m in sales for the latest quarter, although this reflected the Can$222m acquisition in May of Westeel, the group's Winnipeg-based rival.

Full-year sales rose by 15.8% to Can$474.3m, helped by a 26% jump in international revenues.

The "significant increase" in foreign sales "reflects continued momentum in Latin America and strong sales in the Black Sea region, including Ukraine", the group said.

The results follow the unveiling on Wednesday of the R$30m acquisition of Brazilian grain bins manufacturer Entringer.

"Brazil has a substantial deficit in the infrastructure and equipment required to properly store, condition, and handle the growing grain crop," said Tim Close, the Ag Growth International chief executive.

"The combination of the growing crop and the lack of infrastructure create an excellent market for Ag Growth International," which has spent more than three years planning an entry into the Brazil.

By Mike Verdin

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