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 in a variety of venues.

Key Highlights:

• Strong margin profile: The group reported a strong operational efficiency in the recent past that resulted a higher Gross margin and EBITDA margin in Q1FY21, which stood at 55.7%, and 12.50%, respectively, significantly higher than the industry median of 38.3% and 7.60%, respectively. Net margin stood higher at 8.50%, as compared to the industry median of 3.90%.

• Closed USD 55 million auctions: Recently, the group reported strong traction from the equipment segment, wherein the corporation sold more than 4,300 equipment items and trucks for USD 55 million at its site in Fort Worth, TX. Notably, the above online auction attracted more than 13,500 bidders from 66 countries.

Q1FY21 Financial Highlights:

• RBA announced its quarterly result, wherein the company reported total revenue of USD 331.555 million, as compared to USD 273.255 million in the previous corresponding period (pcp). The period was marked by a 13% y-o-y increase in Service revenue to USD 206.030 million, while inventory sales revenue grew 39% on y-o-y to USD 125.525 million. 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 were recorded at USD 287.053 million, as compared to USD 239.173 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 116.078 million, partially offset by an 8% y-o-y decline in cost of services at USD 36.027 million.
• Net income stood higher at USD 28.139 million, as compared to USD 22.829 million in Q1FY20.
• Cash and cash equivalents stood at USD 294.380 million, while total assets were recorded at USD 2,626.694 million.

Q1FY21 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:

Despite the ongoing downturn, the group reported strong traction from the packages of trucks and equipment consigned in the recent past, wherein buyers are paying premium pricing for the above segment, which indicate robust demand dynamics. Due to the COVID 19 protocols, the group integrated full fledge action through online, which has resulted in increasing participants and as a result, the group witnessed strong pricing within each equipment category. Notably, the recent auction, which was held at Fort Worth, witnessed more than 100 equipment views per lot, reflecting a jump of 52% on y-o-y basis. Apart from North American customers, the group saw additional buyers from Australia, Belgium, India and Thailand. On the valuation front, the stock is trading at a forward EV to Sales multiple of 4.5x compared to the industry (Professional & Commercial Services) mean of 7.9x. Hence, we recommend a ‘Hold’ rating on the stock of RBA at the last closing price of CAD 71.44 on May 31, 2021.

One-Year Technical Price Chart (as on May 31, 2021). Analysis by Kalkine Group

Intertape Polymer Group Inc.

Intertape Polymer Group Inc. (TSX: ITP) is a recognized leader in the development, manufacture and sale of a variety of paper and film-based pressure-sensitive and water-activated tapes, polyethylene and specialized polyolefin films, protective packaging, engineered coated products and packaging machinery for industrial and retail use. 

Key highlights 

• Robust Operations: The Company is continuously showing a spirited performance across the revenues, net earnings, adjusted EBITDA and adjusted EBITDA margin. In Q1 2021, all major products demonstrated growth on a Y-o-Y basis which drove record revenue, up by 24%, net earnings grew 33%, adjusted EBITDA was up by 59%, while adjusted EBITDA margins improvement by 379 basis points to 17.4% respectively. 

• Continuation of positive dynamics:The management has shared guidance regarding FY 2021, where they expect to clock a revenue between USD 1,375 and USD 1,450 million, adjusted EBITDA would be in a range of USD 235-USD 250 million, while the free cash flows would be in a bracket of USD 80-USD 100 million. The company believes that the strong demand and order backlog experienced to date would help to achieve these set of numbers. 

• Diversity of End Markets:The company enjoys a strong variety through its products in end markets. They witnessed positive momentum since the trough in demand from Jan. This product diversification provides a safety cushion to the group as they do not derive significant revenues from any single end market. In Q1 2021, General Manufacturing, Fulfilment/E-commerce and Building & Construction segments were the strongest performers.

Source: Company 

Financial overview of Q1 2021 (In thousands of US dollars)

Source: Company 

• The Company’s revenue increased 24.2% to USD 345.5 million in Q1 2021, compared to USD 278.2 million in Q1 2020. The rise was primarily due to increased demand in products with significant e-commerce end market exposure including water-activated tape and protective packaging.

• In Q1 2021, the Company reported a gross profit of USD 82.5 million, increased by USD 23.4 million compared to USD 59.1 million in pcp. Gross margin stood at 23.9% against 21.2% in the first quarter of 2020.
• Adjusted EBITDA increased 58.7% to USD60.3 million from USD38.0 million primarily due to an increase in gross profit.

• The Company’s reported Net earnings in Q1 2021 stood at USD19.7 million, which increased compared to USD 14.3 million in pcp, primarily due to an increase in gross profit, partially offset by an increase in selling, general and administrative expenses. 

Risks associated with investment

The Company is exposed to many risks which could adversely affect the Company’s results of operations and financial conditions. Some of these risks include current economic conditions and uncertain economic forecast, fluctuations in raw material costs, or the unavailability of raw materials, competition, customer preferences, etc. 

Valuation Methodology (Illustrative): Price to Earnings 

Stock recommendation

In Q1 2021, the company experienced strong demand and carried the momentum into the second quarter with a strong order book in place. All significant products demonstrated growth on a year-over-year basis in the first quarter, which drove record revenue, up more than 24%, and strong net earnings and adjusted EBITDA performance. Furthermore, for FY2021, the management has shared healthy guidance. Moreover, the company believes that the strong demand and order backlog experienced to date would help achieve the guidance numbers. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 29.12 on May 31, 2021. We have considered Supremex Inc, Avery Dennison Corp, Winpak Ltd etc. as the comparison's peer group.

One-Year Technical Price Chart (as on May 31, 2021). Analysis by Kalkine Group

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

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