aegis
Limited work (NASDAQ:LVRO) distributes agricultural inputs. LVRO recently released its Q4 FY23 and FY23 results. The growth they experienced in difficult market conditions is impressive. But despite the solid results, its share price is trading quite low, and the valuation is also cheap, which I I believe it could be a great buying opportunity. Furthermore, the outlook for FY24 is positive. Therefore, I think LVRO could be rewarding in the near future. Therefore, I assign a Buy rating to LVRO.
Financial analysis
LVRO recently released Q4 23&23 results. Revenue for 4QFY23 was $265.6 million, a 16.5% increase over 4Q22. Its Brazil Ag Retail segment saw solid growth, which was the main reason for the revenue increase. Brazil Ag Retail segment revenue increased 31.9% in Q4 FY23 compared to Q4 FY22. The main reason for the increase in income in this segment there were higher corn seed prices and increased volumes of corn seed and fertilizer crop protection products. Its gross margin for Q4 FY23 was 17.6%, which was 16.2% in Q4 FY22. The reason for the strong margin was the improved product mix and strong growth of its biologics, which is their highest margin product. Adjusted EBITDA in Q4 FY23 also increased significantly to $2.4 million, compared to a net loss of $16.3 million in Q4 last year.
Not only the quarterly results, but also the annual results were impressive. Revenue for FY23 increased by 23.9% in FY23 compared to FY22. The main reason for the growth was the high demand for its biopesticide products. Adjusted EBITDA for FY23 was $149.8 million, up from $91.6 million in FY22. Gross margin for FY23 was 18.5%, which was 17.1% in FY22. The results are fantastic, in my opinion, and what makes it more impressive is that the company reported strong growth during tough market conditions. The price of most commodities, such as herbicides, soybeans and fertilizers, fell and was quite volatile during FY23. But despite falling prices, the company was not only able to increase its revenue, but its margins also improved, which is quite impressive. Also, other obstacles faced during the financial year were high interest rates and excessive inventory levels. Speaking of interest rates, the Central Bank of Brazil has cut interest NORMS to 12.25%, and is expected to decrease further in the coming times. So it’s a positive for the company, and talking about the excess inventory, management expects it to take effect by the end of 2023 and after that, the inventory headwind may start to diminish. So the bottom line is that LVRO delivered growth and solid results during the worst times, and now all the headwinds are starting to subside, so I believe LVRO will do better in the coming times. LVRO’s management has given revenue guidance for FY24, and if we take the midpoint, it’s around $2.15 billion, which is 19.7% higher than FY23 revenue. So, the future outlook is positive and looking at the positives, I think it can achieve the revenue target, which can positively impact its share price.
Technical Analysis
Commercial view
LVRO is trading at $6.7. Looking at the LVRO chart, I think it’s the right time to go bottom fishing in the stock. The stock fell about 67% after hitting a high of $15.80 in February. After falling for three months, the stock stopped at the $5 price and has formed a base around that area. After forming a base, the stock has formed a triple bottom pattern, which is an effective bullish reversal pattern. Additionally, LVRO’s most recent weekly candle is a large green candle, which indicates buying power in the stock. And the stock price has come close to the $7 level, and if it breaks that, the stock has great upside potential. So, seeing the positive price action, I think it is the right time to add to the stock. Therefore, I assign a Buy rating to LVRO.
Should you invest in LVRO?
Despite solid results and a positive outlook, LVRO’s share price has corrected heavily since the start of 2023 and is still near all-time lows, and ASSESSMENT is also quite low. LVRO is trading at a price / sell [FWD] ratio of 0.37x, and the sector average is around 1.33x. LVRO has an EV / EBITDA [FWD] ratio of 6.23x compared to the sector average of 10.97x. So the falling share price and low valuation, despite solid financials, could be a boon for new investors, as I think LVRO has strong upside potential. Therefore, I think that this opportunity should be used because it seems technically and financially strong. Furthermore, the outlook for FY24 is positive, so considering these factors, I assign a buy rating to LVRO.
The danger
If they were to acquire a target business outside the U.S., all earnings and revenues would likely be derived in foreign currencies, and a decline in the value of the local currency could adversely affect the dollar equivalent of their net assets and any distribution they do. Changes in political and economic situations are among the factors that affect the value of currencies in their target locations, causing them to fluctuate. Any change in the value of such currency relative to their reporting currency could have an impact on the appeal of each target company, as well as their financial condition and operating results after the completion of their first business combination. Additionally, a target firm’s cost, measured in dollars, will increase if a currency appreciates against the dollar before their first business combination is completed, which may reduce the likelihood that they will be able to complete such a transaction.
end
LVRO was able to perform in difficult market conditions. They delivered strong results in difficult times. All the headwinds they faced in FY23 have started to subside, which I believe will help them grow their earnings in FY24. Despite all these positives, LVRO’s share price is trading at significantly lower levels, and the valuation is also low, which I believe makes it undervalued. I believe it has great upside potential and could be rewarding in times to come. Therefore, I assign a Buy rating to LVRO.
