Ritchie Bros. Auctioneers Incorporated

Ritchie Bros. Sells over 35,000 Items for more than USD 295 million: Ritchie Bros. Auctioneers Incorporated (TSX: RBA) operates the world's leading marketplace for heavy equipment. As on 13 July 2020, the market capitalization of the company stood at ~CAD 6.08 billion. The online strength and global network of Ritchie Bros. set a record and sold over 35,000 equipment items and trucks in 29 online auctions across five countries. Gross transaction proceeds for the record-breaking week surpassed more than USD 295 million.

Quarterly Performance (For the Period ended 31 March 2020): During the quarter ended 31 March 2020, total revenue of the company stood at USD 273.3 million and operating income witnessed a slight increase of 1% to USD 34.1 million as compared to Q1 2019. In the same time span, net income attributable to stockholders increased by 26% to USD 22.8 million and diluted earnings per share attributable to stockholders went up by 24% to USD 0.21 per share.

Quarterly Performance (Source: Company Reports)

Key Risks: Due to the spread of the COVID-19 virus and the social distancing restrictions to control the pandemic, the company had to postpone four live auctions, which adversely impacted its GTV volumes. RBA has also experienced softness in the International region due to the continuing economic uncertainty.

Stock Recommendation: The company delivered a decent set of numbers in the first quarter. It retains a flexible operational model, technology, and a healthy balance sheet which will help the company to weather the impact of COVID-19. As per TSX, the stock of RBA is inclined towards its 52-week high of CAD 62.07. The stock of RBA gave a return of 2.66% in the past three months. On a Trailing Twelve Months basis (TTM), the stock is trading at an EV/Sales multiple of 3.9x, lower than the industry median (Professional &Commercial Services) of 28.7x. Considering the current trading levels, decent returns in the past three months, decent financial performance, and record sales of equipment, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 56.2, down by 0.1066% on 13 July 2020.

RBA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Calian Group Ltd.

Calian Expands European Presence with Acquisition of Norway-based Training Company: Calian Group Ltd (TSX: CGY) operates through four segments namely Advanced Technologies, Health, Learning and Information Technology and delivers diverse products and solutions for private sector, government and defence customers in North American and global markets. As on 13 July 2020, the market capitalization of the company stood at ~CAD 568.42 million. The company has recently broadened its presence in Europe with the acquisition of Comprehensive Training Solutions International. The combined expertise is likely to generate earnings growth.

Quarterly Performance (For the Period Ended 31 March 2020): During the second quarter ended 31 March 2020, the company reported record quarterly revenue of CAD 104.5 million, exceeding CAD 100 million for the first time and adjusted EBITDA of CAD 10.2 million. In the same time span, net profit of the company was CAD 5.3 million, an increase of 36% from CAD 3.9 million in the same period of the prior year. During the quarter, the company has increased the overall contract backlog and has signed new contracts of CAD 140 million. The decent financial and operational performance enabled the Board to declare a dividend of CAD 0.28 per share.

Guidance: The company has recently provided guidance wherein it expects revenue to be in the range of CAD 380,000 to CAD 410,000 and adjusted EBITDA to be in between CAD 34,306 and CAD 36,728. The company also expects adjusted net profit in the range of CAD 20,180 to CAD 22,602.

Key Risks: The company is exposed to a variety of risks including the impact of price competition; scarce number of qualified professionals; the impact of rapid technological and market change; loss of business or credit risk with major customers; technical risks on fixed price projects. CGY has also witnessed a slight decline in major training exercises related to COVID-19.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company retains a solid cash position and has access to debt facility. It has the liquidity to support its continued innovation, and long-term, profitable growth. As per TSX, the stock of CGY gave a return of 46.32% in the past three months and a return of 17.35% in the last one month. The stock is also inclined towards its 52-weeks’ high level of CAD 60.98 but holds the potential for further growth. We have valued the stock using the EV/Sales multiple based illustrative relative valuation approach and have arrived at a target upside of lower double-digit (in percentage terms). Considering the current trading levels, decent returns in the past three months, positive guidance and improving financial performance, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 58.50, down by 2.4837% on 13 July 2020.

CGY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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