Ritchie Bros. Auctioneer

Ritchie Bros. Auctioneer (TSX: RBA) started its operations in 1958 as a live auctioneer of industrial equipment. Since then, it has greatly expanded its operations to include the sale of construction, agricultural, oilfield, and transportation equipment in a variety of venues.

Key Highlights

• Getting prepared for its largest-ever, single-owner auction: Barrilleaux Inc., an oilfield pipeline construction business situated in New Mexico and Texas, will be auctioned off on August 10th and 11th, 2021, in the company's largest-ever single-owner auction. This two-day event would sell tens of millions of dollars’ worth of equipment, including late-model, low-hour directional drills, trenchers, 40+ pipelayers, 120 excavators, and much more.
  

• Healthy Performance: Despite the headwinds, the company saw a decisive contribution to GTV growth across all geographic regions and channels and demonstrated the growth in Q1 2021, where the Gross Transaction Value increased by 11% and contributed to a 31% increase in operating income.

Source: Company

• Consistent Operating Free Cash Flows:The resilience of the business along with agile management and operational efficiency helped the group in generating operating free cash flows of USD 410 million in Q1 2021 on TTM basis against CAD 228 million in the previous corresponding period. Although from last three quarters on the sequential basis, the group reported decline in free cash flows; but viewing the headwinds and macros the group kept themselves on the positive territory, which is applaudable.

Source: Company

Financial overview of Q1 2021 (Expressed in thousands of United States dollars)

Source: Company

• In Q1 2021, the company reported total revenue of USD 331.5 million compared to USD 273.2 million in the previous corresponding period. The period was marked by a 13% y-o-y increase in Service revenue to USD 206.0 million, while inventory sales revenue grew 39% to USD 125.5 million, respectively. Within the inventory sales revenue, the group witnessed volume growth across various countries in Europe with new auctions coupled with a large private treaty deal in Australia. 
• Total operating expenses stood at USD 287.0 million compared to USD 239.1 million in the previous corresponding period, reflecting a jump of 20% on y-o-y basis. The increase was primarily attributable to 18% y-o-y jump in selling, general and administrative expenses at USD 116.0 million, partially offset by an 8% y-o-y decline in cost of services at USD 36.0 million.
• Net income stood higher at USD 28.1 million against USD 22.8 million in Q1FY20.
• Cash and cash equivalents stood at USD 294.3 million, while total assets were recorded at USD 2,626.6 million.

Risks associated with Investment

A decline in Gross Transaction Value (GTV) due to lower demand within the heavy goods and construction segments might dampen the overall performance of the company.

Valuation Methodology (Illustrative): Price to Earnings

Stock recommendation

Despite the prolonged slump, the company reported significant traction from recent consignments of trucks and equipment, with purchasers paying premium pricing for the above sector, indicating strong demand dynamics. Because of the COVID 19 protocols, the group was able to incorporate full-fledged activity through the internet, which resulted in an increase in participation and, as a consequence, strong pricing within each equipment category. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 74.19 on July 12, 2021. We have considered WSP Global Inc, Boyd Group Services Inc, GDI Integrated Facility Services Inc, etc. as the peer group for the comparison.

One-Year Technical Price Chart (as on July 12, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.