Ritchie Bros. Auctioneers

Ritchie Bros. Auctioneers (TSX: RBA) operates the world's leading marketplace for heavy equipment. The group is a live auctioneer of industrial equipment and enhanced its operations across construction, agricultural, oilfield, and transportation equipment across several venues.

Key Highlights:

• Improved Margins: The company commands higher margin than its peers, which indicates higher operational efficiencies. In Q2FY21, the company reported EBITDA margin and operating margin of 28.9% and 22.6%, respectively, which was higher than the industry median of 16.0% and 9.7%, respectively. Net margin stood higher at 15.3%, significantly higher than the industry median of 3.4%.
• Operation Highlights: In the latest auction held in Houston from August 24 to 26, 2021, the group successfully attracted more than 12,250 bidders from 66 countries. Almost 88% of the equipment were sold to U.S. buyers. In total, the company was able to sell more than USD 48 million of equipment from the above auction. Earlier, during the Retirement auction for Barrilleaux Inc. held on Aug 10 to 11, 2021, the group saw participation from more than 6,900 bidders from 56 countries, and it sold more than USD 99 million of pipeline construction equipment. The above remains extremely encouraging for the company, and we believe the momentum to continue considering the increasing participants for bidding.
• Management Update: On September 08, 2021, the company announced that the Chief Operating Officer, Jim Kessler, would take on the additional role of President with immediate effect.

Q2FY21 Financial Highlights:

• RBA announced its quarterly result, wherein the company reported total revenue of USD 396.361 million, as compared to USD 389.050 million in the previous corresponding period (pcp). The growth was supported by higher service revenue (USD 252.748 million v/s USD 234.139 million in pcp), partially offset by a slide in inventory sales revenue (USD 143.613 million v/s USD 154.911 million in pcp). Notably, gross transaction value stood at USD 1,527.642 million, reflecting a 2% y-o-y growth from pcp.
• Total operating expenses were recorded at USD 306.844 million, higher than USD 300.250 million in the previous corresponding period. The increase was primarily attributable to higher selling, general and administrative expenses coupled with an increase in depreciation and amortization expenses.
• Net income stood higher at USD 60.781 million, as compared to USD 53.119 million in Q2FY20.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: 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.

Stock Recommendation:

As per the August market trends report, the industry is gaining traction from positive pricing trends across all the equipment indexes, wherein truck tractor prices are up 31% within the U.S., and medium earthmoving and vocational trucks grew 27% and 26%, respectively, in Q2FY21. This is impressive and is expected to support the company’s upcoming auctions. On the valuation front, the stock trades at an EV to Sales multiple of 4.7x on an NTM basis, which is lower than the industry (Professional & Commercial Services) mean of 6.4x. Hence, considering the above rationale, we give a ‘Hold’ rating on the stock at the closing price of CAD 80.26 on September 14, 2021.

One-Year Technical Price Chart (as on September 14, 2021). Analysis by Kalkine Group

Canada Goose Holdings Inc.

Canada Goose Holdings Inc. (TSX: GOOS) is a Canada-based company primarily engaged in designing, manufacturing, and selling premium outdoor apparel for men, women, youth, children and babies. The Company operates through two segments: Wholesale and Direct to Consumer. 

Key highlights

• Robust quarterly performance: The company reported decent performance in the Q1 2022, with revenue surged by 116% to CAD 56.3 million on a YoY basis, gross profit improved by 540% to CAD 30.7 million and gross margin rose to 54.5% V/s 18.4% on a YoY basis. All geographic regions saw a considerable rise in revenue.

• Impressive Outlook: For FY22, the company expects its revenue to touch one billion, higher than CAD 903.7 million in FY21. The increase is expected to be driven by improved performance from the company’s DTC segment. Moreover, the company expects its wholesale revenue to come at par with FY21.
• New Products launch: The company intend to continue investing in innovation and the development and introduction of new products across styles, uses, and climates. Additionally, they sell Baffin branded footwear through Baffin’s own distinct sales channels. The group is also developing a separate Canada Goose footwear offering for cold weather which is planned for commercial launch in Fall / Winter 2021.

Financial overview of Q1 2022

Source: Company

• In Q1 2022, the revenue surged 116% to CAD 56.3 million compared to CAD 26.1 million in the previous corresponding period. The increase in revenue was mainly due to healthy performance from DTC and wholesale segment.
• On the back of lower cost of sales and higher revenue, the company’s gross profit increased to CAD 30.7 million against CAD 4.8 million in the previous corresponding period.
• Operating loss in the reported period stood at CAD 60.7 million against CAD 59.3 million in pcp, which was mainly due to higher SG&A expenses, which increased to CAD 71.6 million V/s 48.6 million in pcp.
• Net loss stood at CAD 56.7 million compared to CAD 50.1 million in Q1 2021.

Risks associated with investment

Extension of government’s restrictions for the closure of stores would dampen the company’s sales volume and the overall performance. Also, there is a possibility that consumers might cut down on discretionary spending, which would affect the group’s financials.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

In Q1 2022, the company posted robust revenue, which surged by 116% to CAD 56.3 million on a YoY basis and generated healthy gross margins. Additionally, it also experienced decent consumer traction across China as it reported over 188.7% increase in revenue. Furthermore, for the second quarter of fiscal 2022, the company assumes sustainable growth in the Wholesale and DTC revenue, which is a key positive.  Hence, considering the above rationale and valuation, we give a ‘Hold’ rating on the stock at the closing price of CAD 49.48 on September 14, 2021.

One-Year Technical Price Chart (as on September 14, 2021). Analysis by Kalkine Group

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

Disclaimer

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