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CIBC Lowers Price Target On Alliance Grain Traders On Q4 Margin Depression

 March 28, 2012 01:00 PM


CIBC World Markets Inc. lowered its price target on shares of Alliance Grain Traders Inc. (TSX:AGT.TO) to $21 from $25, following the lentil and pea splitting company's gross margin decline in the fourth quarter.

CIBC, which maintained its "Sector Performer" rating on the stock, noted gross margins declined to 8.2 percent (CIBC estimate 13.3 percent) as a result of liquidity issues in primary market regions and sluggish demand that forced AGT to sell product at lower margins.

The brokerage decreased its estimates to reflect more modest gross margins in 2012 as a result of a changing sales mix (both product and regional) due to continued economic uncertainties. CIBC lowered 2012 EPS estimate for the company to $1.16 from $2.00 and 2013 EPS estimate to $2.57 from $2.66.

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Despite reportedly low inventories, buyers continue to purchase pulses on a "hand-to-mouth" basis as a result of liquidity issues and local currency depreciations relative to the U.S. dollar. Currency uncertainty has purchasers cautious as local currencies remain suppressed and volatile, CIBC wrote.

AGT's net debt increased to $264.8 million as of Dec. 31, 2011 from $117.7 million at the end of 2010. This was the result of higher inventories at port facilities as debt was used to fund working capital requirements to allow shorter transit periods for buyers to accommodate buying pattern shifts, CIBC noted.

Canada-based Alliance Grain Traders is engaged in sourcing and processing specialty crops, including red split lentils, peas, chickpeas, beans and canary seed, primarily for export markets. The company also engages in processing other products, such as rice, sugar, salt, edible oils, among others.

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AGT.TO shares are off 1.83 percent to trade at $15.04 on Wednesday. In the 52-week period, shares have been trading between $14.75 and $26.04.

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