RBA : NYSE : US$20.00
RBA : TSX
Ritchie Bros. Auctioneers is the world’s largest industrial equipment auctioneer. The company conducts auctions in more than 110 locations across the globe, including 44 auction sites in North America, Europe, the Middle East, Asia, and Australia. Auctions are 100% unreserved and consist of used and unused equipment that serves a wide variety of industries, such as agriculture, construction, forestry, mining, petroleum, and transportation.
All amounts in US$ unless otherwise noted.
We continue to rate RBA shares HOLD and reiterate our US$20.00 target price. We see a compelling long-term investment case given that RBA’s major capex spend is behind it and organic growth efforts to fill out resulting capacity could potentially result in material dividend upside. Valuation, however, keeps us neutral.
Peter Blake, RBA’s CEO : The US is where management sees the most room for improvement. While a number of issues are impacting US GAP growth, an untenured (less productive) US sales force is perhaps the biggest. Other geographies are more or less operating to plan. Management is increasingly looking to the rental companies as prospective sources of new GAP. Adding a former rental company executive to the Board in June was a nod in this direction.
Separately, RBA released Q3/13 GAP of $790 million (-7% y/y), below our $860 million estimate. On a LTM basis, GAP is down 6%, reflecting the sales force productivity and macro issues mentioned above. We cut our Q3/13 EPS estimate to $0.10 from $0.14 as we incorporate the lower than expected GAP and build in severance as part of some restructuring.
Model changes & valuation
We take our 2013E EPS lower by 8% to $0.68, 2014E lower by 19% to $0.81, and introduce 2015E of $1.00. RBA trades at 25x 2014E, above the comps group trading at 19x. Increasing GAP and ROIC could potentially get us more constructive on RBA shares