AgroFresh: Better Weather Should Drive Stock Meaningfully Higher

Summary

• Shares of AgroFresh were pummelled last fall when the company missed numbers owing to a weak North American Apple harvest.
• Preliminary Apple forecasts released this week suggest 8% y/y crop growth this year.
• Better apple production, coupled with the growth of Harvista and RipeLock should position AGFS to achieve the upper end of guidance.
• With shares largely unloved and/or unnoticed, we believe risk/reward is attractive in light of the weather forecast.
• Potential catalysts include continued strong weather/crop forecasts, the naming of a new CEO, and the resumption, in earnest of the company's buyback.

"Sometimes you win, sometimes you lose, sometimes it rains."

- Bull Durham

Since AgroFresh's (AGFS) merger with Boulevard Capital Acquisition (a former SPAC) it's been a bumpy ride. While shares went as high as $13 - and insiders were buying in late August/early September at prices over $10. Things deteriorated markedly when the company reported 3Q results with a bad apple harvest to blame (down ~20% y/y in North America) - and on the call management did not provide full-year guidance, despite just 45 days remaining in the year. The stock traded to $4.50. Two days later the company provided guidance - about 13% below full-year original; full-year expected EBITDA, not great, but far from the disaster implied by the earnings conference call - which was followed by 6 additional insider buys and shares recovered to almost $7.

The bumpy ride continued in early 2016 with the exit/termination of both the company's CEO and its President in early March. We believe it was a cultural mismatch, with AgroFresh's senior leadership coming from Dow (DOW), a company with a large firm culture, when the company, in fact, needed a much more entrepreneurial leader. In the interim, there are co-CEOs - who are exceptionally qualified to temporarily head the business - Dr. Nance Dicciani running the operations, and Stephen Trevor running M&A. Management has indicated that it will have a new CEO named by its 2Q conference call. We believe this is an exceptionally engaged management team and Board. According to the proxy statement, the Board met 18 times last year. If anyone is aware of a Board that met more frequently, we'd be interested to know. More recently, Avenue Capital founder (the sponsor of the SPAC), and billionaire Marc Lasry, joined the Board of Directors.

Several weeks ago SA contributor Leveraged

Analyst’s Disclosure: I am/we are long AGFS, AGFSW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.