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:

• New acquisition to reap yield in coming days: The company reported the acquisition of SmartEquip for approximately USD 175 million. The above company is engaged in providing a multi-manufacturer platform which would provide customers with real-time service and diagnostic support. It also enables the electronic procurement of parts from OEMs and their dealers. The above acquisition is in line with the company’s long-term goal of transitioning from a traditional auctioneer to provider of transaction solutions for commercial assets.

• Encouraging response from Great Lakes Regional Event: On September 28, 2021, the company conducted a Regional Event Great Lakes, wherein the group witnessed participation from more than 10,000 bidders from 54 countries registered to bid for more than 3,600 items. The above auction gained traction from equipment and truck owners, which includes several items for GMC Excavation & Trucking Ltd., based in Galion, OH.

• Management Update: On October 06, 2021, the management disclosed that Sharon Driscoll would be retiring from the post of Chief Financial Officer within the next two years.

Q2FY21 Financial Highlights:

• RBA announced its quarterly result, wherein the group posted its 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, up 2% on y-o-y.
• Total operating expenses stood at USD 306.844 million, stood higher from 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.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The company reported strong operating performance, wherein profitability margin stood higher than the industry peers, which indicates improved operational efficiencies. Notably, EBITDA margin and operating margin stood at 28.9% and 22.6%, respectively, in Q2FY21, higher than the industry median of 16% and 9.7%, respectively. Moreover, the net margin stood at 15.3% in Q2FY21, higher than the industry median of 3.4%. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like GDI Integrated Facility Services Inc, WSP Global Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of RBA at the last traded price of CAD 80.74 on October 13, 2021.

One-Year Technical Price Chart (as on October 13, 2021). Analysis by Kalkine Group

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

Jamieson Wellness Inc.

Jamieson Wellness Inc. (TSX: JWEL) is engaged in the manufacturing, distributing, and marketing of branded natural health products like vitamins, minerals, and supplements.

Key Highlights:

• Growth in financial metrics: The company reported consistent growth in the top-line and profitability growth in domestic industry growth driven by brand and category penetration. Moreover, the company’s overall performance was supported by strong growth from the international segment.

Source: Company Presentation

• Improved margins: The company commands a higher margin than its peers, which indicates higher operational efficiency. Notably, EBITDA margin and operating margin stood higher at 17.7% and 14.5%, respectively, in Q2FY21, higher than the industry median of 16.9% and 13.9%, respectively. Moreover, the net margin stood at 10.4% in Q2FY21, higher than the industry median of 8.5%.
  

• Positive Outlook: The management expects its Jamieson Brands segment to grow between 3.7% to 7.1% during FY21. The company’s international segment is likely to deliver decent performance, and its volume would remain at par with the previous corresponding period. Additionally, Strategic Partners growth rate would likely increase by 20% to 25 during FY21, supported by increase in demand from the customer’s branded products.

Q2FY21 Financial Highlights:

• JWEL declared its quarterly result, wherein the group posted revenue of CAD 556 million, jumped from CAD 93.204 million in the previous corresponding period (pcp). The increase was driven by strong growth from Jamieson Brands (CAD 82.391 million v/s CAD 74.292 million in pcp).
• Gross profit climbed to CAD 324 million, from CAD 32.941 million in pcp, supported by higher revenue, partially offset by the increased cost of sales (CAD 72.232 million v/s CAD 60.263 million pcp). Gross profit margin stood at 34.7%, as compared to 35.3% in the corresponding period.
• Earnings from operations came CAD 043 million, jumped from CAD 10.675 million in pcp. The quarter was marked by slightly higher selling, general and administrative expenses, while a decline in share-based compensation expense supported the profitability. Notably, the company’s operating margin improved 300 bps on y-o-y basis to 14.5%.
• Adjusted EBITDA stood higher at CAD 327 million, as compared to CAD 18.983 million in pcp.
• Net income was recorded at CAD 472 million, soared from CAD 6.038 million in Q2FY20.          

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The product of the company caters to the healthcare segment and are subjected to several regulatory approvals, and a delay in the above would hinder the company’s upcoming product launches.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The group is investing in consumer education in order to bring new consumers and expand their usage across segments. We believe the above would likely to support the company’s performance in the coming days.

We have valued the stock using the Price to Earnings-based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Recipe Unlimited Corp, Premium Brands Holdings Corp etc. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the last closing price of CAD 37.47 on October 13, 2021.

One-Year Technical Price Chart (as on October 13, 2021). Analysis by Kalkine Group

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

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