American Vanguard Corporation(Security Anaylisis

8/6/2019 American Vanguard Corporation(Security Anaylisis

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Mehmet [email protected]

Research Report

AMERICAN VANGUARD CORPORATION

Founded in 1969, American Vanguard Corporation is a diversified specialty

and agricultural products company focusing on crop protection, turf and

ornamental management, and public and animal health. The Company has

continued its successful strategy of acquiring or licensing both new and

well established product lines that serve numerous high valued market

niches. Through skillful marketing, aggressive product registration activities,

quality manufacturing, and international expansion, American Vanguard has

positioned itself to capitalize on developing trends in global agriculture.

RECENT STATISTICS (As 11/27/2010)

Recent Price 6.94

PE Ratio 52.8

Dividend Yield 0.60%

EPS 0.13

Dividends 0.02

Price to book 1.16

RECOMMENDATION

Recommendation SELL

Company is not in a good shape

High debt Ratio (not growing enough to justify its debt)

High P/E Ratio

ROE and ROA values are low

Affected by 2009 and has a ( ) revenue


2/18


3/18

Long Term Debt = 45.43M

Shareholders Equity = 153.09M

= 45.43/153.09 = 29%

Equity Ratio = Owners Equity/Total Assets

Equity Ratio

Equity Ratio = Owners Equity/Total Assets

153.09M /254.71M = 0.61

Short Term Debt

2005 2006 2007 2008 2009

Current Portion of Long Term Debt 8.11M 4.11M 4.11M 6.66M 8.53M

Modern Portfolio Theory

Risk Free Rate

The theoretical rate of return of an investment with zero risk. The risk-free rate represents the

interest an investor would expect from an absolutely risk-free investment over a specified period

of time. The papers issued by U.S usually considered as risk- free.

Current 10 year bond is 2.94

The inflation rate is 1.17

The Market return for S&P over the years is considered as 6-8 percent

Beta is the calculated to understand how volatile the stock is. But in order to have a better

opinion we should compare it with its competitors and industry.

Company Industry Sector S&P 500

0.31 1.07 1.38 1.28


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Profitability

Profit Margin

Net profit margin for AVD = 5.29%

Profit Margin over Years

Operating Margin

Operating income for 2009 = - 6.33

Net sales = 209.33

Operating Margin is = 3%

But the 5 year avg. operating margin is = 12.16

ROE Du Pont Model

The financial analysis is carried out using DuPont System of analysis and some others pertinent

ratios. DuPont analysis examines a companys Return on Equity (ROE) by splitting it into three

main elements:

Financial leverage

Asset use efficiency

Profitability


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2009

net

income/sales

-5.9/209.33

=-0.02

sales/assets

209.33/254.71

=0.82

assets/equity

254.71 /

153.09

=1.66

Return on Total Capital

ROTC = (net income + interest expense) / average total capital

Cost Of Equity

For determining cost of equity

Dividend Capitalization Model

Or

Capital Asset Pricing Model can be used which is;

-According to DCM;

Dividends per share = 0.02

Current Market Value of stock = 6.95


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If we require 8% percent of return (which is closely the market return)

6.95*8/100 = 0.55 (return we expect from a stock) we already have 0.02 from the dividends. So

the cost of Equity is 0.53 per stock. 0.53/ 6.95 = 7.6%

-According to Capital Asset Pricing Model

Rf = considering 10 year U.S bond = 2.95 %

Beta of the security is = 0.31

Expected market return is 8 % so

Cost of the equity is = 4.55 %

Revenue Growth

2000 2001 2002 2003 2004

Revenue 74.52M 83.13M 100.67M 124.86M 150.85M

2005 2006 2007 2008 2009

Revenue 189.80M 193.77M 216.66M 237.54M 209.33M

If we calculate the Compound annual Growth Rate for Sales which is;

For 10 years

{(209.33 /74.52) ^ 0.1} -1 = 10 % annually

For the ten year period company did good in earnings.

For 5 Years

{(209.33 /189.80)^ 0.2} -1 = 2% annually

For 5 year period company has just increased 2 percent annually

For 3 years


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{(209.33/ 216.66) ^ 0.33) = - 0.1

For 3 years company has decreased in its earnings.

Net Income Growth

2000 2001 2002 2003 2004Net Income 4.31M 5.64M 7.05M 10.26M 14.48M

2005 2006 2007 2008 2009Net Income 19.00M 15.45M 18.73M 20.02M -5.79M

To have a better observation I will use periods 2000-2008

For 8 years

(20.02/4.31)^0.125 1 = 21%

For 5 years

{(20.02 / 10.26) ^ 0.2} -1 = 14%

For 3 years

(20.02 19.00) ^ 0.33} 1 = 1.7 %

Operating Statistics

Earnings per Share

= 0.13 $

AVD Earnings per Share Rankings

Overall 47th percentile 2470 of 4713

Sector 50th percentile 250 of 501 in Basic Materials

Industry 40th percentile 9 of 15 in Agricultural Chemicals


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Dividends per Share

Dividends per share = $ 0.2

AVD Dividend Rankings



Industry 53rd percentile 7 of 15 in Agricultural Chemicals

Book Value per share

Book Value per Share: $5.90

AVD Book Value per Share Rankings


Sector 32nd percentile 251 of 371 in Basic Materials


Valuation

A publicly traded firm potentially has an infinite life. The value is

therefore the present value of cash flows forever.


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Since we cannot estimate cash flows forever, we estimate cash flows

for a growth period and then estimate a terminal value, to capture the

value at the end of the period:

Cash Flow - Operations 2005 2006 2007 2008 2009

Depreciation, Depletion, Amortization 7.02M 6.67M 10.09M 11.61M 13.49M

Other Non-Cash Items 0.24M 1.12M 1.78M 4.70M 0.45M

Total Non-Cash Items 7.26M 7.80M 11.87M 16.31M 13.93M

Deferred Income Taxes -3.58M

Total Changes in Assets/Liabilities -7.45M -55.00M 22.56M -35.44M 23.81M

Other Operating Activities

Net Cash from Operating Activities 18.82M -31.76M 53.16M 0.88M 31.95M

Cash Flow - Financing

Debt Issued 17.89M 55.39M -39.61M 24.14M -28.44M

Equity Issued 1.01M 23.88M 0.97M 1.15M 1.47M

Dividends Paid -1.55M -2.16M -1.84M -2.13M -1.61M

Other Financing Activities 0.23M


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Net Cash from Financing Activities 17.36M 77.34M -40.48M 23.16M -28.59M

Foreign Exchange Effects 0.01M 0.05M 0.21M -1.14M 0.11M

Net Change in Cash & Cash

Equivalents

0.89M 0.50M 1.36M -1.97M -0.85M

Cash at beginning of period 0.46M 1.34M 1.84M 3.20M 1.23M

Cash at end of period 1.34M 1.84M 3.20M 1.23M 0.38M

P/E

n/a for the last year.

P/E High - Last 5 Yrs. 34.61 2.18 0.56 20.08P/E Low - Last 5 Yrs. 12.53 0.16 0.06 4.99

Price to Book Value

Price to Book Value: 1.19

AVD Price to Book Value Rankings




11/18


Pricing

Expected Return = (Dividends Paid + Capital Gain) / Price of Stock

We expect a 8% gain,

Dividends paid = 0.02

Expected Return =(0.02 + 0.56) / 7 = 10%

For 5 years

Stock Price = 7* (1.08)^ 5 = 10.28

The expected return is 10% 1.10^5 = 1.61

Expected Price is = 10.28 / 1.61 = 6.38

INDUSTRY ANALYSIS

In Agricultural Chemicals industry American Vanguard has giant competitors such as Potash

Corporation, Monsanto Corporation, and the Mosaic Company.

The Companies in Chemical Industry by market capital;

Company Market Cap RevenuesPotash Corporation of Saskatchewan $41.20B $1.57BMonsanto Company $32.97B $1.95BThe Mosaic Company $30.44B $2.19BSyngenta $27.52B

Agrium $12.77B $2.01BCF Industries Holdings $8.65B $917.10MThe Scotts Miracle-Gro Company $3.40B $475.70MCompass Minerals International $2.89B $176.00MIntrepid Potash $2.39B $91.47MTerra Nitrogen $1.84B $136.00MRentech $297.58M $49.78M

China Agritech $235.32M $23.89MChina Green Agriculture $226.35M

American Vanguard $191.86M $68.26MConverted Organics $16.19M $0.81MNew Oriental Energy And Chemical $13.39M $3.19M

Some Valuation data about firms in the industry


12/18

Earning Yield and PE Ratio

Company Earning Yield PE Ratio

Converted Organics -236.84%New Oriental Energy And Chemical -78.95%Rentech -12.32%

American Vanguard -0.85%SyngentaIntrepid Potash 1.44% 69.28China Agritech 2.29% 43.58CF Industries Holdings 2.59% 38.64Monsanto Company 3.30% 30.35The Mosaic Company 3.35% 29.83Potash Corporation of Saskatchewan 3.70% 27.03

Agrium 4.58% 21.81Compass Minerals International 5.18% 19.32The Scotts Miracle-Gro Company 5.95% 16.81Terra Nitrogen 6.66% 15.01

China Green Agriculture 11.51% 8.69

Price and Price to book Value

Company Price Price to BookValue

Potash Corporation of Saskatchewan $138.91 5.25

CF Industries Holdings $121.71 2.01Terra Nitrogen $99.36 10.25Compass Minerals International $88.27 10.13

Agrium $81.15 2.49The Mosaic Company $68.32 3.36Monsanto Company $61.00 3.25Syngenta $58.19 4.07The Scotts Miracle-Gro Company $50.77 4.45Intrepid Potash $31.87 3.24China Agritech $11.33 1.64China Green Agriculture $8.43

American Vanguard $7.01 1.19

Rentech $1.38 6.47New Oriental Energy And Chemical $0.95 7.61Converted Organics $0.38 -0.91


13/18

Revenue Growth and Retained Earnings Growth

Company Revenue

Growth

Retained

Earnings

Growth

New Oriental Energy And Chemical -57.79% -1717.54%

Rentech -46.67% -19.99%

China Agritech -11.66% 32.27%

The Scotts Miracle-Gro Company -8.96% 48.03%

Compass Minerals International -3.46% 75.22%

China Green Agriculture

Syngenta -14.75%

American Vanguard 2.84% -1.90%

Monsanto Company 3.94% 19.61%

Agrium 8.95%Converted Organics 16.50% -100.23%

Terra Nitrogen 33.93%

Intrepid Potash 37.66% 23.03%

Potash Corporation of Saskatchewan 43.30% 45.40%

The Mosaic Company 50.17% 6.11%

CF Industries Holdings 113.23% 17.57%

Profit Margin & ROE

Company Profit Margin Return on

Equity

Converted Organics -2710.17% 520.03%

New Oriental Energy And Chemical -22.08% -1515.97%

Monsanto Company -7.32% 10.68%

The Scotts Miracle-Gro Company -6.85% 25.52%

Rentech -3.37% -86.03%

China Green Agriculture 37.12%

Syngenta Agrium 2.84% 11.53%

CF Industries Holdings 5.26% 4.71%

American Vanguard 5.29% -0.94%

China Agritech 7.67% 7.17%

Compass Minerals International 10.97% 55.22%

Intrepid Potash 12.75% 4.62%


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The Mosaic Company 13.60% 11.50%

Potash Corporation of Saskatchewan 25.57% 21.74%

Terra Nitrogen 25.88% 80.45%

Current Ratio and debt to Equity Ratio

Company Current Ratio Debt to Equity

Ratio

China Agritech 23.09 0.04

Intrepid Potash 4.24 0.10

Compass Minerals International 3.58 2.51

The Mosaic Company 3.45 0.44

Agrium 2.39 0.91

American Vanguard 2.13 0.75Syngenta 2.13 1.44

Terra Nitrogen 2.03 0.41

Monsanto Company 2.01 0.76

CF Industries Holdings 1.65 1.00

The Scotts Miracle-Gro Company 1.43 1.83

Rentech 1.27 2.96

Potash Corporation of Saskatchewan 0.90 0.85

Converted Organics 0.53Porter Analysis


15/18

Threat of New Entry

- This is not a big treat because government applies lots of regulations.

- Since chemicals involved, many regulations must be satisfied therefore this is not a

threat.

Supplier Power

- There are limited suppliers and most of them are internationals. This is a major threat for

the industry

Buyer Power

- There will be always buyers for the company. As population grows number of customers

will increase, not a threat

Threat Of Substitution

- This is not a threat because chemicals are being used in agriculture and there is noalternative way to get desired results without using chemicals.

Competitive Rivalry

- As we observe there are giant firms in the sector. American Vanguard is a small

company comparing them. This is a big threat for the company because its competitors

are financially very strong.


16/18

INCOME STATEMENT

Income 2005 2006 2007 2008 2009

Revenue 189.80M 193.77M 216.66M 237.54M 209.33M

Cost of Revenue 104.12M 111.41M 120.93M 136.41M 148.90M

Gross Profit 85.68M 82.36M 95.73M 101.13M 60.43M

Research & Development

Expense

Selling, General, & Admin.

Expense

Depreciation & Amortization

Operating Interest Expense

Other Operating Expenses -53.41M -53.14M -59.72M -64.99M -66.75M

Total Operating Expenses 157.53M 164.56M 180.65M 201.39M 215.66M

Operating Income 32.27M 29.22M 36.01M 36.14M -6.33M

Non-Operating Income -1.33M -2.69M -5.49M -3.97M -3.21M

Pretax Income 30.94M 26.52M 30.53M 32.17M -9.54M

Provision for Income Taxes 11.94M 11.07M 11.80M 12.15M -3.75M

Income after Tax 19.00M 15.45M 18.73M 20.02M -5.79M

Minority Interest

Equity In Affiliates

Income Before Extraordinaries &

Disc. Operations

19.00M 15.45M 18.73M 20.02M -5.79M

Investment Gains/Losses

Other Income/Charges

Income from Discontinued

Operations

Net Income 19.00M 15.45M 18.73M 20.02M -5.79M

Earnings Per Share Data 2005 2006 2007 2008 2009

Average Shares to compute

diluted EPS

25.76 27.19 27.44 27.47 27.12

Average Shares used to compute

basic EPS

24.34 25.93 26.31 26.64 27.12

EPS - Basic net 0.78 0.60 0.71 0.75 -0.21

EPS - Diluted net 0.74 0.57 0.68 0.73 -0.21


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BALANCE SHEET

Assets 2005 2006 2007 2008 2009

Cash & Short Term Investments 1.34M 1.84M 3.20M 1.23M 0.38M

Receivables 60.27M 75.74M 56.57M 51.97M 44.64M

Inventory 44.36M 66.63M 63.45M 90.63M 72.51M

Prepaid Expenses 0.85M 1.35M 2.21M 1.69M 2.14M

Other Current Assets

Total Current Assets 106.82M 145.57M 125.44M 145.51M 119.68M

Gross Property, Plant &

Equipment

73.09M 80.15M 73.30M 87.87M 92.19M

Accumulated Depreciation 38.75M 43.50M 41.52M 46.63M 53.00M

Net Property, Plant & Equipment 34.34M 36.65M 31.78M 41.24M 39.20M

Long Term Investments

Goodwill & Intangibles 41.22M 79.03M 85.32M 91.08M 86.97M

Other Long Term Assets 0.64M 0.91M 6.04M 9.11M 8.87M

Total Long Term Assets 76.41M 116.81M 123.14M 141.43M 135.03M

Total Assets 183.23M 262.38M 248.58M 286.94M 254.71M

Liabilities 2005 2006 2007 2008 2009

Current Portion of Long Term

Debt

8.11M 4.11M 4.11M 6.66M 8.53M

Accounts Payable 28.39M 15.69M 13.80M 16.20M 11.40M

Accrued Expenses 26.82M 23.29M 30.55M 22.97M 30.95M

Deferred Revenues

Other Current Liabilities

Total Current Liabilities 65.15M 46.34M 50.30M 49.15M 50.88M

Total Long Term Debt 34.37M 93.76M 56.16M 75.75M 45.43M

Deferred Income Tax 1.26M 1.40M 2.39M 6.09M 5.12M

Minority Interest

Other Long Term Liabilities 0.19M

Total Long Term Liabilities 35.63M 95.16M 58.55M 81.84M 50.74M

Total Liabilities 100.78M 141.50M 108.84M 130.99M 101.62M

Shareholder's Equity 2005 2006 2007 2008 2009

Common Shares Outstanding 24.39M 26.13M 26.42M 29.21M 29.58M

Preferred Stock

Common Stock, Net 2.66M 2.83M 2.87M 2.92M 2.96M


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Additional Paid-in Capital 9.90M 34.82M 36.55M 38.87M 41.53M

Retained Earnings 72.83M 86.11M 103.00M 120.90M 113.50M

Treasury Stock 2.75M 2.75M 2.75M 3.15M 3.15M

Other Shareholder's Equity

Shareholder's Equity 82.45M 120.88M 139.74M 155.94M 153.09MTotal Liabilities & Shareholder's

Equity

183.23M 262.38M 248.58M 286.94M 254.71M

CASH FLOW ANAYLISIS

Cash Flow - Operations 2005 2006 2007 2008 2009

Depreciation, Depletion,

Amortization

7.02M 6.67M 10.09M 11.61M 13.49M

Other Non-Cash Items 0.24M 1.12M 1.78M 4.70M 0.45MTotal Non-Cash Items 7.26M 7.80M 11.87M 16.31M 13.93M

Deferred Income Taxes -3.58M

Total Changes in Assets/Liabilities -7.45M -55.00M 22.56M -35.44M 23.81M

Other Operating Activities

Net Cash from Operating Activities 18.82M -31.76M 53.16M 0.88M 31.95M

Cash Flow - Financing

Debt Issued 17.89M 55.39M -39.61M 24.14M -28.44M

Equity Issued 1.01M 23.88M 0.97M 1.15M 1.47MDividends Paid -1.55M -2.16M -1.84M -2.13M -1.61M

Other Financing Activities 0.23M

Net Cash from Financing Activities 17.36M 77.34M -40.48M 23.16M -28.59M

Foreign Exchange Effects 0.01M 0.05M 0.21M -1.14M 0.11M

Net Change in Cash & Cash

Equivalents

0.89M 0.50M 1.36M -1.97M -0.85M

Cash at beginning of period 0.46M 1.34M 1.84M 3.20M 1.23M

Cash at end of period 1.34M 1.84M 3.20M 1.23M 0.38M

American Vanguard Corporation(Security Anaylisis

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