Ritchie Bros. Auctioneers

Ritchie Bros. Auctioneers (TSX: RBA) is a leading industrial auctioneer and provides end-to-end solutions to buy and sell used heavy equipment, trucks and other assets. The global asset management and disposition company operates through 12 countries and serves a variety of sectors including construction, agriculture, oil and gas, mining, forestry, and transportation, among others.

The Company declared a quarterly cash dividend of US$ 0.20 per common share, payable on June 17, 2020.

Q1FY20 Financial Highlights: For the period ended March 31, 2020, RBA posted a decent quarterly performance, reporting a 26% y-o-y growth in net income to US$ 22.81 million. However, the group witnessed a 10% y-o-y slump in the revenue to US$ 273.255 million primarily attributable to a significantly lower performance from the inventory sales revenue segment. However, RBA’s service revenue continued to shine and reported a 6% growth over the previous corresponding period. Operating income stood at US$ 34.08 million, up 1% over Q1FY20, supported by a 32% lower cost of inventory sold, while higher selling, general & administrative expenses remained a drag. Total Gross Transactional Value (GTV) declined ~2% to US$ 1,147.02 million. The decline was primarily due to the rescheduling of four live auctions during the quarter.

Q1FY20 Income Statement Highlight (Source: Company)

Stock Recommendation: The stock of RBA has generated a decent return of 32% in the last one year. The Company has a unique business model, which is resilient. The stock is trading above its 200-day simple moving average (SMA) CAD 53.75, which suggest a bullish trend in the prices. The group transferred its traditional live on-site auctions to online mode owing to COVID-19 pandemic. The group witnessed significant momentum in the first two months; however, four auctions were rescheduled to the second quarter. The group continued to gain traction in online auctions. Due to the COVID 19, the group experienced softness in the International region primarily from Europe and Asia. The group is trading at a forward EV/Sales multiple of 3.5x against the industry (professional and commercial services) average of 2.5x. The higher multiple is justified owing to the unique and resilient business model of the group. Considering the aforementioned fact, we recommend a ‘HOLD’ rating on the stock at the closing price of CAD 61.79 as on May 8, 2020.

RBA One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

Bombardier Inc

Bombardier Inc (TSX: BBD.B) manufactures transportation solutions, from commercial aircraft and business jets to rail transportation equipment and related services. The company operates in two segments: Aviation and Transportation. The company mainly operates in Europe, North America, Asia-Pacific.

Recent Order Status: Bombardier received an order of US$ 340 million from India’s National Capital Region Transport Corporation (NCRTC).  Under the contract, the group will be supplying 30 regional commuter trainsets of six cars each and 10 intracity mass transit trainsets of three cars each. The group will also be providing rolling stock maintenance for 15 years.

Q1FY20 Financial Highlights: Bombardier Inc reported a rise of 5% y-o-y in its revenues to US$ 3,691 million. Revenue from the aviation segment grew by 8% on account of six Global 7500 Deliveries, while wind-down of commercial aircraft activities remained a drag. Revenue from the transportation segment was up 5% on y-o-y basis. Adjusted EBITDA stood lower at US$ 171 million, reflecting a 36% decline over Q1FY19. Adjusted EBITDA margin took a hit of 300 bps and stood at 4.6%. Net loss stood at US$ 200 million, as compared to US$ 239 million in Q1FY19. The company’s free cash flow has been hindered by the engineering, production and supply chain disruptions resulting in a negative free cash flow usage US$ 1,642 million versus a negative cash flow of US$ 1,044 million in the previous corresponding period. The company reported a cash balance of US$ 2,069 million as on March 31, 2020.

Q1FY19 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock was hammered in the recent past and corrected ~79% in the last year. The group is witnessing a continuous selling pressure since it has announced the sale of its transportation segment. The group is expecting a 30% to 35% slowdown in aviation product demand, owing to weaker market conditions. The order book from the commercial aircraft is expected to remain tepid; however, Global 7500 has a solid order book. The group expect the business to hit a low point in the second quarter and suspended its FY20 guidance. Considering, the aforesaid factors, we believe the near-term outlook looks bleak for the group, and we prefer to remain in the sidelines. Hence, we recommend a ‘Watch’ stance on the stock at the closing price of CAD 0.44 as on May 08, 2020.

One Year Daily Chart, Source: Refinitiv (Thomson Reuters)

Disclaimer

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