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Morningstar | Ritchie Brothers' Live Auction Model Continues to Resonate With Buyers and Sellers

After taking a fresh look at Ritchie Brothers, we are lowering our fair value estimate to $29 from $31 and are changing our moat trend rating to stable from negative. We observe that Ritchie Brothers’ live, unreserved auction model continues to resonate with both buyers and sellers despite the wide number of alternative venues, both live and online. More importantly, now that Ritchie Brothers has a significant online presence after the acquisition of IronPlanet in 2017 and, at the same time, continues to add features to its live auctions, it has demonstrated that it can grow alternative channels without cannibalizing its core business that began in 1958.

We observe that many buyers of heavy equipment feel the need to inspect any heavy equipment for condition issues, as many variables can impact value. Ritchie Brothers makes equipment available for inspection, including starting engines and using hydraulic functions, for weeks before the actual auction takes place. This gives prospective buyers flexibility to inspect equipment at a time of their choosing. Ritchie Brothers continues to add online functionality to its live auctions, including equipment previews and online bidding. In recent years, most of its live auctions are won by online bidders.

With the acquisition of IronPlanet in 2017, online-only auctions have become a larger percentage of GTV. In 2016, online auctions represented approximately 3% of GTV, whereas in 2018, it was 16%. Ritchie Brothers’ live auction GTV increased approximately 5% from 2017 to 2018. Further evidence of the strong demand for its live auctions was the record-breaking event held in Orlando in February 2018. In the largest auction in the company’s history, Ritchie Brothers sold $278 million worth of equipment in 12,500 lots. Bidders from 90 countries participated in the auction.

Data acquisition and analysis trends suggest that future generations of heavy equipment are likely to record granular information about the operational history of pieces of heavy equipment. Our research suggests that users are becoming increasingly cognizant of their total cost of ownership and are demanding improved telematics and advanced sensor platforms on vehicles. Ultimately, the aggregation of operational data could provide a more colorful operation history than can be currently conveyed electronically. Should owners elect to retain and share such information, this could improve information discovery and facilitate more online transactions. However, we feel such a scenario won’t play out for several decades for several reasons. First, there is a large installed base of equipment lacking sophisticated telematics. Second, some of the more critical condition issues can’t be evaluated by current sensor platforms. Currently, Ritchie Brothers appears to be adequately juggling different marketplace venues while being cognizant of a variety of threats.