Morningstar | Tight Supply of Equipment Impedes Ritchie's Growth in Otherwise Robust Sales Environment. See Updated Analyst Note from 04 Mar 2019
In the fourth quarter, Ritchie Bros. Auctioneers increased gross transaction volume to $1.34 billion, representing 3.3% year-over-year growth. Due to a tight supply of used equipment and expenses related to various initiatives, including GovPlanet, quarterly EPS of $0.32 missed Street expectations of $0.35. Agency proceeds, which many analysts evaluate as an alternative to revenue to gauge the firm’s performance, were $193 million in the quarter, missing consensus of $202 million. In an odd twist, Ritchie Bros. noted that the Securities and Exchange Commission has instructed the firm to no longer provide agency proceeds to investors, as the measure could be misconstrued as revenue--even though it was always a supplemental metric. While this doesn’t affect valuation, it slightly complicates future analysis of the firm as quarterly revenue volatility doesn’t accurately represent the underlying performance of the business. We are raising our fair value estimate to $31 per share from $30 due to the time value of money.As with the third quarter, lack of equipment availability in the United States hurt performance. There was strength in Canada, which had double-digit GTV growth. Various international auction markets performed well, including the Middle East, Australia, and Europe, which increased GTV at mid-single-digit rates. Management noted that it is aggressively pursuing business outside its core construction equipment sales by attracting sellers of transportation equipment (17% of GTV in 2018) and agricultural equipment (9% of GTV). The efforts have had some success as agricultural equipment GTV grew 43% in Canada year over year. We were surprised to learn that Ritchie Bros. has experienced recent softness in the market for lift equipment as this differs from the fourth-quarter performance of the manufacturers of these products, which are experiencing growth due to tight labor markets that drive the use of such equipment to improve productivity.
Ritchie Bros. Auctioneers sells industrial equipment and other assets for the construction, agricultural, transportation, energy, mining, forestry, material handling, marine and real estate industries at its unreserved auctions and online marketplaces. The auction items are sold during live on site auctions without a minimum or reserve price. Through EquipmentOne (Co.'s online marketplace), equipment sellers are able to list their equipment on the online marketplace, receive and accept offers, and complete and settle their sale. Co.'s other services include Private Treaty, in which Co. acts as a private sales agent and conduct negotiated sales of equipment items between buyers and sellers.
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