Weekly Sector Credit – The Ag Tech Sector vs Agrify (AGRY: Nasdaq), (a sector member and recipient of a $20M convertible secured financing facility this week)

• We have noted previously that the median credit quality of the Ag Tech sector appears to have bottomed out and is poised for recovery.
• Liquidity, as measured by the free cash flow adjusted current ratio, is still problematic, with a median ratio of .58x, indicating a significant urgency for additional funding. Agrify, which just received a $10M credit injection along with an estimated $2-3M equity injection, is a bit better proforma for these injections but, at .67x, will still need additional capital, presumably from the 2^nd half of the $20M GTI facility.
• Leverage: the sector median of total liabilities to market cap is .95x, a value which can be algebraically transformed into an asset value/liabilities of 2.05x. Agrify’s total liabilities to market cap is far higher at 7.73x, implying asset coverage of only 1.13x.
• Profitability: we calculate an annualized funds from operation to assets median of -27.6% for the sector, whereas Agrify has far worse profitability at -57%.
• We conclude that the sector’s most significant credit positive is its implied asset value coverage. Agrify is worse than median credit on every metric, ratifying our judgment that GTI is not investing in Agrify as a sound or profitable investment but is more likely looking at some sort of RTO to gain a Nasdaq listing.