-- CIBC Capital Markets maintained its neutral rating on the shares of Ag Growth International (AFN.TO) and raised its price target to C$23.00 from C$19.00 on Thursday.
CIBC is transfered coverage of Ag Growth from Krista Friesen to Hamir Patel, as of April 30, it added.
Although CIBC has a "favorable view" on long-term demand for grain processing and handling, near-term uncertainty remains high, CIBC said.
"Elevated leverage (4.7x), persistent operating challenges, an abrupt strategic shift and the absence of permanent leadership create a difficult backdrop for the business in the near term," said CIBC. "That said, sector headwinds are gradually easing and underlying pressures should subside as conditions normalize."
Against this backdrop, Ag Growth's core assets retain "significant strategic value," noted CIBC and said that with activist shareholders pushing for a formal sale process, it believes the probability of a transaction has increased, it added.
"After several years of declining farm incomes, elevated borrowing and input costs, and prolonged inventory destocking across the farm equipment and machinery complex, the ag cycle appears to be bottoming," stated CIBC.
While industry-wide headwinds persist, they are no longer worsening, noted CIBC and added that key cyclical pressures such as high inventory and elevated borrowing costs are abating. Coinciding with the industry trough, CIBC expects AFN's Farm segment sales to be relatively steady in 2026 (+0.3% Y/Y) before beginning to recover in 2027 when CIBC sees Farm revenues increasing 3.8% Y/Y to ~$500 million.
"Multi-year underinvestment in U.S. grain storage has left the system running increasingly close to capacity as crop production continues to grow, with surplus storage falling to ~5% in 2025, well below the long-term average of ~15%," noted CIBC.
As farm economics improve, CIBC expects a release of pent-up capex for on-farm storage and handling upgrades, alongside outsized growth in international markets such as Brazil and India, which have acute storage deficits, it added.
"Since November 2025, a weakened ag market and a string of operational and reporting challenges have driven the stock down ~40% and prompted Street estimates to be cut by ~30%, creating a materially more attractive entry point for a strategic buyer," said CIBC.
CIBC notes that, with a "refreshed and more shareholder-aligned Board," it believes it is now more likely that a sale would be "entertained".
Additionally, activist shareholders owning ~10% of outstanding shares are pushing for a formal sale process, with the June 4 AGM acting as a "potential catalyst", it further noted.
"The absence of a permanent CEO and CFO adds to the conditions that make a sale increasingly feasible," CIBC added. "In our upside scenario, we assume a takeout at 7.5x 2027E EBITDA, implying ~$37/share and ~90% upside from current levels."
Price: $20.21, Change: $+0.81, Percent Change: +4.18%