Agtech company AgriForce Growing Systems Ltd. (AGRI) in Vancouver, Canada, is primarily engaged in developing and acquiring crop production know-how and intellectual property, which is supplemented by modern AgTech facilities and solutions.
The company's shares have gained 114.9% in price over the past month on the back of various strategic collaborations it has forged to boost its operational performance.
However, the stock slumped nearly 12% in price after AGRI announced a debt facility arrangement with an institutional investor. In addition, its widening losses and negative profit margins make its near-term prospects look bleak.
Here is what could shape AGRI's performance in the near term:
Acquisition
This month, AGRI signed a binding agreement of intent to acquire Deroose Plants NV, one of the world's leading tissue culture propagation enterprises, with leadership positions in horticulture, plantation crops, and fruit and vegetables. AGRI's net acquisition price is projected to be around $69 million. On a cash and debt-free basis, the purchase price is roughly $46.4 million for the Deroose business and $22.6 million for the IP portfolio. The acquisition strengthens AGRI's integrated AgTech business model by offering a leading position in tissue culture propagation and plant cultivation and a substantial IP portfolio to increase agricultural yields while reducing environmental impact.
Planned Convertible Debt Facility
This month, AGRI announced its signing of a non-binding term sheet with an accredited institutional investor for a potential convertible financing facility of up to $20 million. The convertible notes would be worth $2.75 per share. Under the terms of the agreement, AGRI would receive an initial payment of $10 million and would have the option to receive an additional payment of $10 million at its discretion, in one or more tranches, subject to certain circumstances. In addition, the Investor would get three-year warrants for half of the principal amount of the note, with an exercise price of $2.75 per share, subject to usual adjustments. The company intends to use the net proceeds from the notes for its previously announced acquisition of Delphy Groep BV (Delphy). This financing could impact AGRI's price performance in the near term.
Mixed Financials
AGRI's cash and cash equivalents grew significantly year-over-year to $9.83 million for the three months ended Sept. 30, 2021. However, its operating loss surged 142.7% from the year-ago value to $2.38 million. The company's net loss increased 87.4% from the prior-year quarter to $1.82 million, while its loss per share amounted to $0.14 over this period. In addition, its net cash used in operating activities increased 84.7% for the nine months ended Sept. 30, 2021, to $3.02 million.
Poor Profitability
AGRI's ROA and ROC are negative 32.7% and 45.2%, respectively. Furthermore, its trailing-12-month cash from operations stood at negative $3.24 million compared to its $395.58 million industry average.
POWR Ratings Reflect Uncertainty
AGRI has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. AGRI has a D grade for Stability and C for Quality. The Stability grade represents the stock’s higher volatility than its peers. In addition, its mixed financials are consistent with the Quality grade.
Among the 30 stocks in the D-rated Agriculture industry, AGRI is ranked #21.
Beyond what I have stated above, one can view AGRI ratings for Growth, Momentum, Value, and Sentiment here.
Bottom Line
While AGRI's increasing investments across business segments signal strong long-term growth prospects, the company is yet to generate any proper revenue and is still in the early phases of development. So, given its weak financials, we believe investors should wait before scooping up its share.
How Does AgriForce Growing Systems Ltd. (AGRI) Stack Up Against its Peers?
While AGRI has an overall C rating, one might want to consider its industry peers, Golden Agri-Resources Ltd. (GARPY), Archer Daniels Midland Co. (ADM), and Nutrien Ltd. (NTR), which have an overall A (Strong Buy) rating.
AGRI shares were trading at $3.29 per share on Wednesday afternoon, down $0.47 (-12.50%). Year-to-date, AGRI has gained 58.17%, versus a -8.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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