American Vanguard Announces $15M Share Repurchase – Buyback Wednesdays

Key Insights:

• American Vanguard Corporation (AVD) expects to more than double its EBITDA by 2025, making this company a possible growth story.
• Recent insider purchases at AVD combined with a stock buyback announcement provide a double signal.
• The company has gradually repurchased shares in recent years, implying this announcement is likely to translate into actual buybacks that reduce the share count.
• Despite the enduring demand for food driven by a growing population, the influence of cyclicality will be significantly greater than the upward momentum observed.

When I came across American Vanguard Corporation (AVD) among the list of companies that announced stock buybacks recently, the name stood out to me not just because it is an unusual name for an agriculture focused company but also because I had been seeing a string of insider purchases at the company before the buyback was announced.

AVD is a supplier of agricultural products, specializing in a diverse selection of chemicals for safeguarding crops from pests and promoting their overall health. The company has eight businesses operating in Australia, Costa Rica, Brazil, Mexico, Latin America and the United States. Its products are distributed through national distribution companies, buying groups, co-operatives, sales offices and wholly-owned distributors.

On May 25, 2023, AVD announced a $15 million share repurchase program which represents around 3% of its market cap at announcement. Since 2021 AVD has been engaged in a gradual share buyback initiative. Approximately 4.75% of its outstanding shares have been retired during this period. Throughout 2022 and 2023, the company repurchased a total of 761,985 shares of its common stock at an average price of $19.11 per share for a total of $14.56 million.

Insider Purchases:

Two directors of the company purchased 131,813 shares totaling $2.27 million in May. The Chairman and CEO also purchased a small number of shares last September.

Acquisitions:

American Vanguard has expanded its product portfolio through acquisitions and partnerships. In 2019 and 2020, the company acquired a range of herbicides and insecticides from Corteva Agriscience and Syngenta, which added to its agricultural product line.

American Vanguard – Investor Presentation (May ’23)

Current Valuation:

AVD appears to be reasonably valued with a TTM EV/EBITDA of 11.11. The company is expected to grow revenue by 8% in 2023 and earnings estimates of $1.40 per share in 2024 appear to point to significant bottom line growth.

Financials:

AVD has been growing revenue at an average rate of 8.2% per year. Revenue growth has been slow but steady for AVD. The full year 2022 was a record year with revenues increasing to over $600 million. This can be partly attributed to the commodity bull market of the past 5-7 years that allowed revenues to grow rapidly. American Vanguard’s return on equity of 5.2% is very low. Considering gross margins are 39%, net margin of 3.3% is lower than I would have expected.

Strong Cash Flow:

Net debt of $55.9 million for December 2022 is  lower than $61.8 million for December 2021 and almost half that of December 2020. Free cash flow of $43.8 million for 2022 was well above reported net income.

American Vanguard – Investor Presentation (May ’23)

Q1 2023 Results:

The first quarter of 2023 was challenging for the company.

• Overall revenues were down about $25 million or 17% as compared to the same period of 2022.
• Supply chain issues and oversupply of competitive herbicides played a part in the revenue decline.
• Operating expenses were reduced by 4% from the same period in 2022.
• Gross profit of 39.07% was slightly greater than the prior year’s gross margin of 37.27%.
• Net profit margin of 3.3% was lower than last year’s margin of 4.3%.
• Interest expense is up significantly, driven primarily by interest rates, which averaged 6.8% during the quarter as compared to 1.9% for the same period of the prior year, a more than 3.5-fold increase.

Outlook:

2023 full-year outlook is stronger than 2022.

American Vanguard – Investor Presentation (May ’23)

AVD’s earnings are expected to grow significantly over the next 3 years.  In 2024 and 2025, the company expects to generate incremental revenue through new partnerships, geographic market expansion and M&A transactions.

American Vanguard – Investor Presentation (May ’23)

Bottom Line:

The stock has underperformed the market over the past year and is down almost 30% compared to a 5% drop for the Russell 2000 index during the same period. The company missed revenue and EPS estimates in 2 out of the trailing 8 quarters.

The stock trades at a forward P/E of 16.62 and forward EV/EBITDA of 7.46. The story is one of future earnings growth and both the company and insiders appear to think that the headwinds they faced in Q1 2023 were temporary. Food inflation is likely to stay with us and the company’s global reach could help it grow at a consistent rate over the next few years.

Welcome to edition 61 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week. The companies in the list below are the ones that announced the most significant buybacks as a percentage of their market caps. They are not the largest buybacks in absolute dollar terms. A word of caution. Some of these companies could be low-volume small-cap or micro-cap stocks with a market cap below $2 billion.

Top 5 Stock Buyback Announcements 

1. StealthGas Inc. (GASS): $3.12

 On May 25, 2023, the Board of Directors of this ship owning company authorized a new $15 million share repurchase program, equal to around 12.8% of its market cap at announcement.

2. Northeast Community Bancorp, Inc. (NECB): $13.29

 On May 30, 2023, the Board of Directors of this bank authorized a new 1.5 million share repurchase program, equal to around 10% of its market cap at announcement.

3. Waterstone Financial, Inc.(WSBF): $13.78

On May 24, 2023, the Board of Directors of this savings & loan holding company authorized a new 2 million share repurchase program of the company’s Class A common stock, representing around 9% of its market cap at announcement.

4. Gevo, Inc. (GEVO): $1.35

On May 30, 2023, the Board of Directors of this renewable fuels company approved a new $25 million share repurchase program, equal to around 8% of its market cap at announcement.

5. Capstar Financial Holdings, Inc. (CSTR): $12.55

On May 25, 2023, the Board of Directors of this bank authorized a new $20 million share repurchase program, equal to around 7.3% of its market cap at announcement.

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