AGT Food and Ingredients Inc.

Transcription

1 March 23, 2017 The NBF Daily Bulletin Food, Beverage and Tobacco AGT Food and Ingredients Inc. AGT (T) $32.70 Stock Rating: Outperform (Unchanged) Target: $42.00 (Was $46.00) Risk Rating: Above Average (Unchanged) Est. Total Return 30% Shares Outstanding (f.d.) 24.1 Market Capitalization $788.7 Net Debt/(Cash) $546.7 Enterprise Value $1,335.3 Dividend Yield 1.8% 52-w eek High-Low $ $31.64 Average Weekly Volume 375,260 Net Tangible Book Value per Share $9.73 Estimates E 2018E Revenue $ 1,973 $ 2,203 $ 2,348 EBITDA $ $ $ EBITDA Margin % 6.0% 6.1% 6.3% CFPS (f.d.) $ 3.26 $ 3.48 $ 3.96 DPS $ 0.60 $ 0.60 $ 0.60 EPS (f.d.) $ 0.87 $ 2.25 $ 2.66 Balance Sheet E 2017E Debt/EBITDA 1 4.6x 4.2x 3.7x Interest Coverage 3.1x 4.0x 4.4x Valuation E 2018E P/E 37.1x 14.4x 12.2x EV/EBITDA 11.2x 10.0x 9.0x Target EV/EBITDA 13.9x 12.5x 11.2x All amounts in Cdn$ unless otherwise noted. 1: year end debt net of cash vs. TTM EBITDA Industry Rating: Underweight (NBF Economics & Strategy Group) Fourth Quarter 2016 Results Volumes Light in Q4; Target Trimmed But 2017 Still Poised for Growth HIGHLIGHTS EBITDA of $34.7 mln below consensus/nbf by ~10%. Q4/16 EBITDA of $34.7 mln was below consensus of $38.2 mln and NBF of $39.0 mln by ~10% (Q4/15: $32.9 mln, +5% y/y). The culprit was lighter than expected volumes in the pulse processing segment (478k MT vs. 531k MT forecast and 484k MT y/y) as activity levels tracked flattish y/y despite the large Canadian pulse crop, which combined with segment of $56 (vs. $60 forecast & $54 y/y) led the miss. Indian exports concerns appear overdone. India has yet to grant a fumigation exemption on pulse imports from Canada, though Canadian exporters received it consistently for the last decade. We estimate that exports to India account for ~$6.2 mln in EBITDA, or 5% of our 2017e EBITDA forecast, as the bulk of AGT s international pulse trade is conducted with Turkey and North Africa. B/S is an area to watch, but we view debt as manageable. Leverage ticked higher to 4.6x net debt/ttm EBITDA from 4.2x q/q and above our 3.7x pre-quarter estimate, primarily as certain debt repayments were pushed to Q1/17. While elevated, we re comfortable due the fact that AGT has successfully managed an elevated B/S before (7.0x in 2011/12) but without the growth tailwinds enjoyed today. Target trimmed to $42, growth story intact, remain OP. Estimates are updated in Exhibit 9, we trim 2017e EBITDA to $134 mln (vs. prior $148 mln and $141 mln consensus) and roll out our initial 2018e forecast of $148 mln (vs. $157 mln consensus). We trim our target to $42 (from $46) which implies 10.6x 2018 EBITDA (vs. peers at 9.9x, recent trading average of 9.6x and 10.7x prior multiple). While we pull back our expectations, we still note 13% y/y EBITDA growth, and attractive growth areas such as ingredients. Outperform. Company Profile: AGT Food and Ingredients Inc. (AGT) is a leading exporter of split and value-added lentils, peas and pulses to the global food and ingredients markets. The Company sources, processes and sells pulses and specialty crops, primarily for export markets, with processing plants in Canada, the United States, Australia and Turkey. Stock Performance $42.00 $40.00 $ , , ,000 $ ,000 Greg Colman - (416) greg.colman@nbc.ca $34.00 $ , ,000 Andrew Jacklin, CFA (416) andrew.jacklin@nbc.ca $ ,000 Michael Storry-Robertson - (416) michael.storry-robertson@nbc.ca Westley Macdonald-Nixon (416) westley.macdonaldnixon@nbc.ca $28.00 Mar-16 Apr-16 May-16 Jun-16 Source: ThomsonONE, NBF Jul-16 Aug-16 Sep-16 Volume Oct-16 Nov-16 Price Dec-16 Jan-17 Feb-17 0

2 Investment Summary and Outlook AGT Food & Ingredients Inc. (AGT or the Company) is poised to become a leader in the growing pulse-based specialty ingredients business and has excess capacity within its operations to satisfy rising demand. With stable pulse processing demand to underpin the ingredients segment growth, we believe AGT is one of the more compelling growth stories in the Canadian agricultural landscape. AGT is already a global leader in pulse & grain processing with over a dozen transactions in the last 10 years which have consolidated the largely fragmented pulse/speciality crop processing industry. With the volatility of the dismal 2011 Canadian pulse crop created now firmly in the rear view mirror, AGT is now carving out a new market for itself in the specialty ingredients industry by adding pulse ingredient manufacturing capabilities to its product offering (of pulse processing). This higher margin, higher return business is supported by marquee global distribution agreements with Cargill (private) and Ingredion Inc. (INGR: NYSE, not rated), which have both shown substantial interest in building out the pulse ingredient market, particularly Ingredion which has recently allocated significant capital to both organic and M&A growth initiatives for its specialty ingredients business. With the Minot, ND plant nearing completion and high return on incremental capital conversion of existing capacity available to support growth of the ingredients business, we believe AGT is poised to renew its leadership in the evolving pulses industry. While Q results were below our expectations largely as volumes lagged our model, we remain optimistic on a growth trajectory in 2017 and believe that the current concerns surrounding the Indian lentil fumigation policy is overblown. Our target is trimmed modestly to $42 (was $46) and we remain Outperform. Q4/16 EBITDA below both consensus and NBF Q4/16 EBITDA of $34.7 mln was below consensus of $38.2 mln by 9% and NBF of $39.0 mln, but was up 5% y/y from $32.9 mln in Q4/15. Weaker than expected results from the pulse processing result ($26.7 mln EBITDA vs. $31.9 mln forecast and $26.0 mln y/y) was the primary driver of the Q4/16 miss. Total system tonnage was 7% higher than our expectation as very strong activity in the trading & distribution segment (45% above forecast and up 66% y/y to 257k MT) was offset by the fact that the trading segment is low margin and couldn t make up for volume misses in both processing (-10% vs. forecast and -1% y/y) and ingredients (-11% vs. forecast and -4% y/y). Consolidated revenue/mt of $874 was in line with our $885/MT estimate, but the heavy volumes helped generate total system revenue of $651 mln (vs. $615 NBF, $582 mln consensus and $578 mln Q4/15). Overall, consolidated EBITDA of $34.7 mln was light relative to consensus at $38.2 mln and NBF of $39.0 mln by ~10%, but did show y/y improvement, up 5% y/y. Pulses & Grain Processing: The legacy business was light on our tonnage estimate by 10% (478k MT actual vs. 532k MT estimate and 483k MT from Q4/15) as our forecasts proved to be overly optimistic in light of the record pulse crop from Canadian farmers. The lighter than expected volumes were made up with price as revenue per MT of $950 was 6% higher than our $900 estimate, generating segment revenue of $454 mln which was 5% light vs. our $479 mln estimate but flat y/y. Segment EBITDA of $26.7 mln missed our forecast of $31.9 mln by 16% as of $56/MT missed our $60/MT forecast by -7% (Q4/15: $54/MT) as weaker than expected demand in key export markets pressured margins more than anticipated. Packaged Foods & Ingredients: Processed tonnage of 58k MT was 11% shy of our 65k MT estimate and down 4% y/y and 19% q/q. Encouragingly, revenue/mt of $1,308/MT beat our $1,050/MT estimate by 25% y/y and was up 23% y/y and 18% q/q, which gives us optimism that momentum in the segment could pick up as greater volumes are pushed through the system. Segment revenue of $77 mln was 11% above our $69 mln estimate and up 18% y/y. of $144/MT was 3% above our $140/MT estimate, but down from $148/MT y/y. Overall, the segment remained steady with EBITDA of $8.4 mln vs. $9.2 mln forecast and $9.0 mln Q4/15. Segment margins fell to 11.0% vs. our 13.3% forecast and 13.9% y/y. We believe that this was primarily due to fixed cost absorption at the ingredients facility in Minot and pasta expansion in Turkey as both operations continue to ramp up. This will be a focus area in coming quarters.

3 Trading & Distribution: A quarterly segment EBITDA record of $1.5 mln was in line with our $1.4 mln estimate and $0.4 mln Q4/15 as tonnage processed was well ahead of expectations (257k MT actual vs. 177k MT estimate and 154k MT from Q4/15). On an basis, the $6/MT result was 27% below our $8/MT but more than doubled last year s $3/MT result. This remains a tough segment to forecast but, as AGT s smallest segment, it s a minor contributor to the overall picture in terms of EBITDA generation, but is strategic in adding value to customers. Exhibit 1: Summary of quarterly results Summary of Quarterly Results CAD mln, except MT and per MT Q Q Q Actual Estimate Δ Actual Δ y/y Actual Δ q/q Tonnes Invoiced 744, ,341 7% 622,562 20% 488,177 53% Revenue $651 $615 6% $578 13% $442 47% Revenue/MT $874 $885-1% $929-6% $906-4% EBITDA Pulses Processing $26.7 $ % $26.0 3% $ % Margin % 5.9% 6.7% -79 bps 5.7% 17 bps 7.4% -147 bps Trading & Distribution $1.5 $1.4 6% $ % $2.7-44% Margin % 0.8% 1.1% -24 bps 0.3% 50 bps 1.6% -75 bps Pkgd Foods & Ingredients $8.4 $9.2-9% $9.0-6% $9.2-8% Margin % 11.0% 13.3% -234 bps 13.9% -291 bps 12.7% -173 bps Intercompany -$1.9 -$3.6-47% -$2.4-21% -$2.7-30% EBITDA $34.7 $ % $32.9 5% $ % Margin % 5.3% 6.3% -100 bps 5.7% -36 bps 6.2% -86 bps $47 $56-17% $53-12% $56-17% CFPS (f.d.) $1.00 $ % $ % $ % EPS (f.d.) -$0.47 $ % $ % $ % Source: Company reports, NBF estimates Exhibit 2: Detailed per MT summary of quarterly results Detailed Per MT Summary of Quarterly Results Q Q Q Actual Estimate Δ Actual Δ y/y Actual Δ q/q Revenue/MT Pulses Processing $950 $900 6% $941 1% $977-3% Trading & Distribution $697 $740-6% $757-8% $738-6% Pkgd Foods & Ingredients $1,308 $1,050 25% $1,065 23% $1,105 18% Revenue/MT $874 $885-1% $929-6% $906-4% Pulses Processing $56 $60-7% $54 4% $72-22% Trading & Distribution $6 $8-27% $3 129% $12-50% Pkgd Foods & Ingredients $144 $140 3% $148-3% $141 2% $47 $56-17% $53-12% $56-17% Source: Company reports, NBF estimates India s posturing on pulse imports are an understandable investor concern, but unlikely to manifest into a material risk to AGT s business India has yet to grant a fumigation exemption on pulse imports from Canada, though Canadian exporters have received it for the last decade. Earlier this year, concerns began to grow that India would initiate a halt on imports of Canadian pulses due concerns that fumigation, currently taking place in India, is having a detrimental effect on the local environment. Instead, India would like to see Canadian pulses fumigated at the point of origin, prior to shipping. Canadian officials pushed back on this idea, citing that the cold Canadian climate generally kills off many of the pests that India seeks to eliminate with fumigation. The

4 Canadian fumigation exemption is set to expire on March 31, though Canada has consistently been granted the exemption for the last decade. Pulse exports to India account for one-third of all pulse exports and, with a value of ~$1.1-$1.5 bln, is the largest single end market. While a small handful of Canadian shipments have been turned away by Indian ports in recent weeks, Q1 is a seasonally slow period for pulse shipments to India which makes it difficult to detect how serious India is or isn t about enforcing its potential change in the rules. We estimate that exports to India account for only ~$6.2 mln in EBITDA, or 5% of our 2017e EBITDA estimate. India is the world s biggest single importer, consumer and producer of pulses and speciality crops. With consumption in the neighbourhood of mln MT, India imports 4.5 mln MT tonnes of pulse commodities from Canada, Australia and a handful of other countries to backfill the demand/supply gap. Of that 3-4 mln MT, we believe Canada supplies ~2.0 mln MT of India s import needs. While AGT doesn t quantify its exact exposure to India, as the world s largest pulse handler/trader, we believe that the bulk of its international pulse trade is with Turkey and North Africa as opposed to India, due to the relatively lower margins in that region. We estimate that AGT does only about 5% of the Canadian volume to India, which generates EBITDA attributable to the country of approximately ~$6.2 mln or 5% of our total 2017e EBITDA estimate (Exhibit 3). Exhibit 3: We estimate that of our AGT ~5% of AGT 2017e EBITDA is exposed to India s import market AGT EBITDA EXPOSURE TO INDIA Item Num ber Source/Note INDIA PULSE IMPORT DEMAND India Pulse Import Needs 4.5 mln MT Q4/16 AGT MD&A CANADIAN PULSE EXPORT SUPPLY 2017f Canadian Pulse Exports 6.2 mln MT AAFC Reports Indian Shipments of Total Cdn Exports 33% Top Crop Manager * Canadian Pulse Exports To India 2.0 mln MT Canadian Share of India's Pulse Import Needs 45% AGT MARKET SHARE OF INDIA IMPORTS AGT Market Share of Canada to India Pulse Exports 5% NBF Assumption AGT Tonnage To India 0.1 mln MT 2017e Pulse Processing $61 Avg Segment is $62/MT 2017e AGT Indian EBITDA $6.2 AGT 2017 Total EBITDA $134 Consensus: $142 mln % AGT Indian EBITDA 5% Consistent w ith mgmt commentary from Q4/16 MD&A * "Canada shipped $1.5 billion w orth of peas and lentils to India in 2015, accounting for about a third of all pulse exports." Source: Company reports, media outlets, AAFC, NBF Given the similarity to the recent China/Canada canola trade dispute, where a major importer of Canadian agricultural products attempted to gain concessions and was largely unsuccessful, we don t believe that the situation with India will develop into a major disruption for the pulse trade. The trade friction with India is reminiscent of the recent China/Canada canola trade dispute from mid-2016 where China, the largest export destination for Canadian canola products at ~$2.6 bln or 40% of total Canadian canola exports, began posturing that it would curtail canola imports if further processing to reduce waste/pest debris at the point of origin was not introduced. We viewed this largely as posturing given the size of China s consumption, history of canola trade deal extensions and the fact that canola fulfills basic needs of the population, implying that even a temporary supply disruption could prompt an unfavourable reaction from the Chinese public. Sure enough, a trade deal was struck by mid-2016 that extended the pre-existing trade agreement out to 2020 with an added kicker that the two nations will work together on new solutions to reduce unwanted debris from future shipments. Given the similarity of the two situations, particularly how material the agricultural products are to the importing nations, our read on the situation leans toward a resumption of normal trading patterns in short order.

5 However, in a worst case scenario, if fumigation costs are added, early estimates indicate that they may not be overly material. Early estimates for incremental fumigation costs have been estimated to range from $0.20/MT to $4/MT depending on the product, albeit in Australia which may have different specifications than Canadian crops. 1 AGT s pulse processing unit averaged a COGS/MT of $893/MT over the last four years. Although it s unclear who d bear the cost of a scenario where $4/MT COGS is added to the cost structure (e.g., the pulse processors such as AGT, the farmers, the shipping/logistics companies, the port, the buyers), it doesn t seem as though this additional cost, if accurate, would break the economics of AGT s pulse processing business. That said, with segment margins of ~8%, additional cost absorption should be avoided. We re keenly aware of AGT s net debt position, but note its EBITDA growth profile should gradually work leverage ratios down Leverage ticked up in Q4/16 and we believe growing EBITDA should address balance sheet concerns over time. Leverage ticked up to 4.6x net debt/ttm EBITDA in Q4/16, from 4.2x in Q3/16, and missed our 3.7x pre-quarter forecast. On an absolute scale, net debt increased to $546 mln from $491 mln in Q3/16, but was ahead of the $452 mln modeled estimate for Q4/16, mostly due to our assumption that ~$75 mln in additional debt would be repaid in the quarter that wasn t and a working capital change of -$47.5 mln vs. our estimate of $27 mln inflow. Though AGT noted that in February 2017 an additional $123 mln in senior secured notes were redeemed. We also note that elevated leverage is not completely uncharted territory for AGT as the tough lentil crop in 2010/11 took a few years to flow through the financial statements, with net debt to trailing twelve months EBITDA peaking at close to 7.0x. In the short term, we believe there are capital projects and working capital commitments which could absorb effectively all excess FCF as AGT builds out the new building & deflavouring plant ($20 mln) and additional production and processing at Minot (~$15 mln). Beyond this stated growth, we would suspect that the addition of up to three new lines in the Minot facility (~$15 mln total). As a result, we see net debt staying relatively flat, and ratios decreasing as EBITDA rises. Exhibit 4: AGT regained its balance sheet strength over the past two years moving from close to 7.0x debt to TTM EBITDA down to almost ~4.0x with potential for this ratio to further compress as EBITDA ramps in 2017 as the ingredients division rolls out 8.0 x $ x $ x $ x $ x $ x 2.0 x $ x $ x $0-1.0 x -$100 1Q08 Q308 1Q09 Q309 1Q10 Q310 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17e 3Q17e 1Q18e 3Q18e Source: Company reports, NBF Net Debt/TTM EBITDA (LHS) Net Debt (RHS) 1 Farmers urged to learn their fumigation requirements

6 Exhibit 5: AGT FCF Profile AGT FCF Profile $CAD mln Actual Actual Actual Actual Actual Forecast Forecast Forecast Revenue $761 $855 $1,139 $1,357 $1,704 $1,973 $2,203 $2,348 Less: Cash Opex $670 $778 $1,031 $1,212 $1,535 $1,777 $1,983 $2,108 GM% 11.9% 9.1% 9.5% 10.7% 9.9% 10.0% 10.0% 10.2% Less: Cash G&A $45 $42 $49 $60 $70 $80 $86 $91 EBITDA $45 $35 $58 $85 $99 $116 $134 $148 EM% 6.0% 4.1% 5.1% 6.3% 5.8% 5.9% 6.1% 6.3% Less: Cash taxes -$0 $2 -$3 $6 $2 $6 $14 $16 Less: Interest $10 $15 $26 $27 $32 $39 $33 $33 Funds from operations $36 $18 $35 $52 $65 $71 $87 $99 Less: Maintenance capx* $7 $8 $9 $9 $10 $12 $12 $12 Cash available for dividend/growth $28 $10 $26 $43 $55 $59 $75 $87 Divide nd $9 $12 $12 $12 $14 $14 $14 $14 Unallocated FCF $20 -$2 $14 $31 $41 $45 $61 $72 Unallocated FCF/sh $0.99 -$0.08 $0.71 $1.50 $1.75 $1.86 $2.52 $3.00 Basic Payout Ratio 30% 115% 46% 28% 25% 24% 19% 17% Growth capx $44 $26 $30 $25 $85 $67 $25 $25 Surplus (deficit) -$24 -$28 -$16 $6 -$44 -$22 $36 $47 Beginning Net Debt $118 $265 $267 $319 $313 $473 $547 $562 Ending Net Debt $265 $267 $319 $313 $473 $547 $562 $556 Net Debt/EBITDA 5.8x 7.6x 5.4x 3.7x 4.8x 4.7x 4.2x 3.7x *maintenance capx calculated as 3% of Gross PP&E Source: Company reports, NBF estimates Working capital remains an area worth monitoring While working capital has been an area of scrutiny in the past, as a percentage of sales, current levels are within the normal range both vs. peers and history. In Exhibit 6, we chart the degree of working capital intensity of AGT s business. While on an absolute basis, working capital levels have risen considerably from nil in Q1/08 to ~$200 mln as recently as Q3/16, on a percentage of revenue basis, current working capital levels of 10% are in line with their long-term average of 10%. Relative to peers, AGT also seems to be relatively in line with peers which have an average of 9% working capital as a percentage of sales (AGT Q4/16: 8%). Exhibit 6: Scaled to revenue, working capital appears to be within historic norms 30% 25% 20% 15% 10% 5% 0% -5% -10% 1Q08 2Q08 Q308 Q408 1Q09 2Q09 Q309 Q409 1Q10 2Q10 Q310 Q410 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17e 2Q17e 3Q17e 4Q17e 1Q18e 2Q18e 3Q18e 4Q18e $300 $250 $200 $150 $100 $50 $0 -$50 Working Capital * Working Capital (as a % of revenue, annualized) Average (annualized) * working capital = current assets - current liabilities - cash Source: Company reports, NBF

7 Exhibit 7: When compared with peers, AGT s working capital intensity seems reasonable as well GRAIN HANDLING & DISTRIBUTION (in mlns) Working Sales % of sales Issuer Capital* 2017e 2017e Archer-Daniels-Midland Co $7,253 $63,939 11% United Natural Foods Inc $973 $9,356 10% Bunge Ltd $2,474 $44,839 6% GrainCorp Ltd $180 $4,576 4% Andersons Inc/The $196 $4,097 5% Average 7% INGREDIENTS & PACKAGED FOOD MANUFACTURERS Working Sales % of sales Issuer Capital* 2017e 2017e Hain Celestial Group Inc $456 $3,019 15% Ingredion Inc $834 $5,998 14% TreeHouse Foods Inc $805 $6,476 12% Lancaster Colony Corp $89 $1,202 7% McCormick & Co Inc -$119 $4, % Darling Ingredients Inc $328 $3,464 9% SunOpta Inc $156 $1,351 12% Average 10% Average (both) 9% AGT Food & Ingredients Inc $174 $2,203 8% * working capital = current assets - current liabilities - cash Source: Company reports, NBF Minot buildout continues with deflavouring capacity now online Expansion plans for 2017 and beyond to be determined by commercial uptake of ingredients; we model another production line being constructed in H2/17. Expansion of the Minot facility continued as expected with operational capacity continuing to ramp in the quarter with the three production lines hitting 95% utilization. Moreover, the additional capabilities of the deflavouring line should enable AGT to extract further value out of its pulse ingredient products, aiding margin potential. As ingredients are deflavoured, food processors/manufacturers may opt for higher rates of inclusion in their operations. With potential for the inclusion rate to expand from 2% to 7% and beyond. The potential market opportunity is still being assessed but could be very large and would benefit AGT, as a market leader, directly. The current plan, which includes a fourth production line, targeted for commissioning in Q1/17, and an additional line for increased fibre processing, also targeted for Q1/17, remains on track. While management hasn t committed to additional capex for Minot in 2017 as of yet, we believe a fifth production line could be added in H2/17. Management also noted they ve begun studying the possibility for adding ingredients capabilities in Turkey as it would add logistic advantages and satisfy regional demand.

8 Exhibit 8: Minot buildout schedule Cost Capacity (MT) Type Cost Capacity (MT) Type Production Line 1 $ , Greenfield $131 $5.3 Deflavouring Line 1 $ Q2/16 - Greenfield n/a n/a Production Line 2 $4.0 35,000 Q1/14 - Expansion $131 $4.6 Production Line 3 $6.0 30,000 Q3/15 - Expansion $140 $4.2 Subtotal $ ,000 $134 $14.1 Subtotal $ Cost Capacity (MT) Type Cost Capacity (MT) Type Production Line 4 $7.5 35,000 Q1/17 - Expansion $145 $5.1 Production Line 5 $7.5 35,000 H2/17 - Expansion $160 $5.6 Processing Line 1 $7.5 0 Q1/17 - Expansion $0 $0.0 Subtotal $ ,000 $145 $5.1 Subtotal $7.5 35,000 $160 $5.6 Cost Capacity (MT) Type MINOT FACILITIES BUILD-OUT SCHEDULE CURRENT MINOT OPERATIONS PLANT 1 PLANT /17 MODELED GROWTH PLANT 1 PLANT 2 UNMODELED GROWTH (FUTURE UPSIDE) PLANT 1 PLANT 2 Cost Capacity (MT) Type Deflavouring Line 2 $6.5 0 Future Expansion n/a n/a Production Line 6 $7.5 35,000 Future Expansion $160 $5.6 Production Line 7 $7.5 35,000 Future Expansion $160 $5.6 Production Line 8 $7.5 35,000 Future Expansion $165 $5.8 Subtotal Subtotal $ ,000 $162 $17.0 Exhibit 9: Summary of estimate changes GRAND TOTAL $ ,000 n/a $137 $19.1 $ ,000 n/a $161 $22.6 Source: Company reports, NBF TOTAL MINOT OPERATIONS PLANT 1 & PLANT 2 COMBINED Cost Capacity Type (MT) ALL $ ,000 $149 $41.7 Source: Company reports, NBF Summary Recommendation & Valuation While our bias on the name remains firmly positive, we reset our expectations and trim our target to $42.00 (from $46.00) and reiterate our Outperform rating. While Q4/16 was shy of our expectations, 2016 as a whole was quite positive as record EBITDA of $119 mln grew 18% y/y and progress was made at the expanding Minot operation. While our bias on the outlook for 2017 is positive, especially in light of the increasing prominence of pulse acres in farmers fields, we trim our expectations for 2017e EBITDA to $134 mln (vs. our prior street-high $148 mln and $141 mln consensus) and roll out our initial 2018e forecast of $148 mln (vs. $157 mln consensus). With AGT now trading at 9.0x 2018 EV/EBITDA, above the grain handling peers at 7.9x and two turns below the ingredient peers at 11.2x, we believe the valuation is attractive, and look for AGT to trend higher over the coming year as (1) pulse volumes find a steady rhythm, (2) growth capex at Minot is confirmed, and (3) headline risk regarding India abates. Summary of Annual Estimate Changes 2017e 2018e Old New Change Old New Change Revenue Pulses & Grain Processing $1,342 $1,287-4% n/a $1,342 n/a Trading & Distribution $654 $721 10% n/a $757 n/a Packaged Foods & Ingredients $367 $374 2% n/a $437 n/a Total Revenue $2,157 $2,203 2% n/a $2,348 n/a EBITDA $148 $134-9% n/a $148 n/a Margin % 6.9% 6.1% -78 bps n/a 6.3% n/a CFPS (f.d.) $4.05 $ % n/a $3.96 n/a EPS (f.d.) $0.14 $ % n/a $2.66 n/a Target $46.00 $ % n/a $42.00 n/a Target EV/EBITDA 10.7x 11.7x 10% n/a 10.6x n/a Source: Company reports, Bloomberg, NBF estimates

9 Exhibit 10: Peer group AGT now trades above grain handlers but possesses a growing ingredients and packaged foods platform, a peer group which trades at a material premium (all monetary figures in millions, except per share data) GRAIN HANDLING & DISTRIBUTION Ticker Issuer Last Price Shares Market EV EBITDA EV/EBITDA TBVPS P/TBV O/S Cap E 2018E E 2018E ADM.N Archer-Daniels-Midland Co $ $26,047 $31,608 $2,817 $3,281 $3, x 9.6x 9.1x $ x UNFI.O United Natural Foods Inc $ $2,181 $2,692 $295 $323 $ x 8.3x 8.0x $ x BG.N Bunge Ltd $ $11,264 $15,771 $1,662 $1,980 $2, x 8.0x 7.5x $ x GNC.AX GrainCorp Ltd $ $2,057 $2,920 $250 $395 $ x 7.4x 7.7x $ x ANDE.O Andersons Inc/The $ $1,089 $1,491 $118 $186 $ x 8.0x 7.2x $ x Average 10.4x 8.3x 7.9x 1.9x INGREDIENTS & PACKAGED FOOD MANUFACTURERS Ticker Issuer Last Price Shares Market EV EBITDA EV/EBITDA TBVPS P/TBV O/S Cap E 2018E E 2018E HAIN.O Hain Celestial Group Inc $ $3,814 $4,598 $384 $398 $ x 11.6x 11.3x nmf nmf INGR.N Ingredion Inc $ $8,696 $10,159 $1,033 $1,099 $1, x 9.2x 8.8x $ x THS.N TreeHouse Foods Inc $ $4,770 $7,486 $642 $758 $ x 9.9x 8.7x nmf nmf LANC.O Lancaster Colony Corp $ $3,555 $3,429 $204 $225 $ x 15.2x 14.6x $ x MKC.N McCormick & Co Inc $ $11,520 $14,062 $773 $836 $ x 16.8x 16.9x nmf nmf DAR.N Darling Ingredients Inc $ $2,349 $4,060 $439 $468 $ x 8.7x 8.2x nmf nmf STKL.O SunOpta Inc $ $596 $1,105 $96 $84 $ x 13.1x 10.1x nmf nmf Average (excluding boxed outliers) 12.9x 12.1x 11.2x 8.7x Average (both) 11.9x 10.5x 9.9x 3.9x AGT.TO AGT Food & Ingredients Inc $ $789 $1,335 $119 $134 $ x 9.9x 9.0x $ x Source: Bloomberg, NBF Exhibit 11: Forward multiples increased since January 2014 as confidence in management execution of the new ingredients business has grown AGT Forward EV/EBITDA 12.0x 10.0x 8.0x 6.0x 4.0x x Avg Present 9.6x Avg As the new pulse ingredients division has demonstrated commerciality over the last few years, the market has rewarded AGT with an EV/EBITDA mulitple ~1.5x larger than their historic average. 2.0x 0.0x Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Source: Bloomberg, NBF

10 Exhibit 12: Summary Income Statement Consolidated Statement of Earnings (000s) Q17e 2Q17e 3Q17e 4Q17e 2017e 2018e Total Revenue 1,138,776 1,356,745 1,704,450 1,973, , , , ,051 2,203,058 2,347,812 Expenses Direct Operating Expenses 1,03 1,15 6 1,211,667 1,535,072 1,776, , , , ,086 1,982,697 2,108,254 Operating M argin 9.5% 10.7% 9.9% 10.0% 10.6% 9.3% 10.6% 9.7% 10.0% 10.2% General and Administrative 49,161 59,579 70,486 80,385 21,238 18,399 20,652 25,842 86,130 91,365 % of sales 4.3% 4.4% 4.1% 4.1% 4.3% 3.6% 4.3% 3.6% 3.9% 3.9% EBITDA 60,041 87, , ,814 31,071 29,250 29,786 44, , ,193 % of sales 5.3% 6.4% 5.9% 6.0% 6.3% 5.7% 6.3% 6.1% 6.1% 6.3% Stock Based Compensation 2,052 5,170 5,223 5, ,200 3,200 Depreciation in COGS 11,605 14,804 16,558 22,588 5,983 5,573 6,917 6,904 25,377 27,012 % o f PPE 3.9% 4.7% 3.3% 4.1% 4.3% 3.9% 4.8% 4.7% 4.3% 4.3% Amortization 3,463 2,946 3,141 4,410 1, , ,189 4,189 % of sales 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.1% 0.2% 0.2% Operating Profit 43,391 67,749 79,193 88,989 23,858 22,880 21,704 36, , ,992 % of sales 3.8% 5.0% 4.6% 4.5% 4.8% 4.5% 4.6% 5.0% 4.8% 5.0% Interest 25,881 26,949 31,617 38,740 8,374 8,374 8,374 8,374 33,495 33,495 Interest Coverage 2.3 x 3.2 x 3.2 x 3.1 x 0.9 x 0.9 x 0.9 x 1.3 x 4.0 x 4.4 x Interest Rate 7.6% 7.9% 6.4% 6.8% 5.9% 5.9% 5.9% 5.9% 5.9% 5.9% Implied Interest Rate 7.6% 7.9% 6.4% 6.8% 5.9% 5.9% 5.9% 5.9% 5.9% 5.9% Other (mostly FX) 27,739 10,010 23,927 17, Total Expenses 1,151,056 1,331,125 1,686,024 1,946, , , , ,001 2,135,088 2,267,515 Earnings Before Taxes -12,281 25,620 18,426 26,828 14,684 13,706 12,530 27,050 67,970 80,297 Re-organization/Non-recurring Expenses Current Income Taxes -2,503 6,078 2,381 6,045 2,937 2,741 2,506 5,410 13,594 16,059 Future Income Taxes Other Taxes Total Tax Provision -2,503 6,078 2,381 6,045 2,937 2,741 2,506 5,410 13,594 16,059 Effective Tax Rates Current 20.5% 23.7% 12.9% 22.5% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Future 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 20.5% 23.7% 12.9% 22.5% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Goodwill Amortization Non-controlling interest earnings Net Income -9,778 19,542 16,045 21,053 11,747 10,965 10,024 21,640 54,376 64,237 Preferred Dividends Net Earnings to Common -9,778 19,542 16,045 21,053 11,747 10,965 10,024 21,640 54,376 64,237 Net M argin -0.9% 1.4% 0.9% 1.1% 2.4% 2.1% 2.1% 3.0% 2.5% 2.7% Earnings from Discontinued Operations Retained Earnings Opening Balance 22, ,258 10,462 17,181 25,340 32,717 39,153 17,181 57,205 Add Net Earnings to Common -9,778 19,542 16,045 21,053 11,747 10,965 10,024 21,640 54,376 64,237 Dividends/Other -11,909-12,020-13,841-14,334-3,588-3,588-3,588-3,588-14,352-14,352 Closing Balance 999 8,521 10,462 17,181 25,340 32,717 39,153 57,205 57, ,091 Earnings P er Share Earnings Per Share - Basic ($0.49) $0.96 $0.69 $0.88 $0.49 $0.46 $0.42 $0.90 $2.27 $2.69 Earnings Per Unit - Fully Diluted ($ 0.49) $0.95 $ 0.68 $ 0.87 $ 0.49 $ 0.45 $ 0.42 $ 0.90 $2.25 $ 2.66 Source: Company reports, NBF

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12 NBF quarterly ratings summary and the total ratings by month can be found on our website under Research and Analysis/Equities/About NBF Research/Quarterly Ratings Summary (link attached) The NBF Research Dissemination Policy is available on our website under Legal/Research Policy (link attached) Click on the following link to see the company specific disclosures Click on the following link to see National Bank Financial Markets Statement of Policies If a company specific disclosure is not found herein for a listed company, NBF at this time does not provide research coverage or stock rating for the company in question. Additional company related disclosures for AGT Food and Ingredients Inc. (2,3,4,5,7) 2 National Bank Financial Inc. has acted as an underwriter with respect to this issuer within the past 12 months. 3 National Bank Financial Inc. has provided investment banking services for this issuer within the past 12 months. 4 National Bank Financial Inc. or an affiliate has managed or co-managed a public offering of securities with respect to this issuer within the past 12 months. 5 National Bank Financial Inc. or an affiliate has received compensation for investment banking services from this issuer within the past 12 months. 7 The issuer is a client, or was a client, of National Bank Financial Inc. or an affiliate within the past 12 months.