Shares in Ag Growth International tumbled to a seven-month low after the maker of grain storage ditched ideas of improved results this year, citing “weather and trade friction”.
Shares in the Canada-based group, whose footprint also stretches from India to Ukraine, tumbled by 8.5% in early deals in Toronto to their lowest levels since the first week of January, before recovering a little to Can$47.00, a loss of 7.3% on the day.
The drop followed the group’s announcement that it was now expecting results for the second half of this year “will approximate the second half of 2018”.
This compared with a forecast in May that its sales and ebitda for 2019 would “increase compared to the prior year, with the most significant growth expected to occur in the second half of the year”.
Analysts at National Bank of Canada cut to Can$63, from Can$71, their price target for Ag Growth International shares.
‘Weather and trade friction’
Ag Growth International (AGI) flagged “near-term challenges related to historically poor conditions in the US and the delays stemming from trade related uncertainty in our international business”, becoming the latest in a series of ag companies to acknowledge setbacks to the wet US spring, and China-US trade tensions.
“Weather and trade friction combined to impact sales and margin in the first half of 2019, and we expect these conditions to persist into the back half of the year.”
The group said that while the “historically poor planting conditions” in the US had raised sales of crop drying equipment, “demand for grain storage systems in the United States has been impacted”.
In Canada, meanwhile, where a lack of rain threatened Prairies spring sowings early on, “the dry start to the season and a rapidly approaching harvest in some regions has the potential to limit second half sales of storage and aeration products”.
‘Uncertainly regarding trade tensions’
Trade disputes have affected its commercial equipment operations outside North America, with AGI saying that “uncertainly regarding trade tensions has aggravated the customer decision making process, as market participants seek clarity prior to finalising investment decisions”.
The group noted “a deferral of certain projects”, delaying takings from these contracts.
AGI forecast flat underlying sales in its overall commercial division in the second half of 2019, although with revenue from some projects “now expected to be realised in fiscal 2020”.
‘Record amount of corn acres’
The group reported a 2.2% dip to Can$12.52m in earnings for the April-to-June quarter, on revenues up 11.6% at Can$293.0m.
Adjusted earnings per share, at Can$1.04, were in line with investor forecasts, although below the Can$1.21-per-share result a year before.
AGI also forecast better times ahead next year, backing ideas from the likes of Nutrien of a large increase next year in US corn sowings, from levels held back this year by a historically wet spring.
“There is a growing expectation that US farmers will plant a record amount of corn acres in 2020,” the group said, adding that this growth “may result in increased demand for portable grain handling equipment and grain storage systems”.
US corn sowings, currently estimated by the US Department of Agriculture at 91.7m acres for 2019, hit a multi-decade high of 97.3m acres in 2012, but set a record in 1932, of 113.0m acres.
With a rising backlog of international sales too, and the prospect of contributions from its recent indian acquisition, Milltec, “while we face certain headwinds in the second half of 2019, we look forward with excitement to increasing growth in fiscal 2020”.