BMO Already possessing a “well-established brands offering a comprehensive range of services for buying and selling equipment,” RB Global Inc.’sUS$6-billion acquisition of IAA Inc. last year “significant” increases its footprint in the vehicle auction market and more than doubles its gross transaction value, said BMO Nesbitt Burns analyst John Gibson.
“The addition of IAA has introduced a new vertical to RB’s business, expanding its presence in the auto salvage auction market,” he said. “Operating in a duopoly with its main competitor, Copart (CPRT-US; Not Covered), we expect IAA to grow based on positive trends in vehicle total loss frequency. We also believe IAA is now much better positioned to take back market share given its strong technology offering and improved yard capacity. This in turn, allows for better long-term relationships with customers (i.e., insurance companies, dealers, rental businesses, etc.) during and post periods of high turnover.”
“RB’s legacy business (i.e., Ritchie Bros) has evolved substantially, particularly in the last decade. Through a series of acquisitions, the company has shifted from being a traditional auctioneer to a technology-driven asset disposition company. This transformation was accelerated by pandemic-induced supply chain disruptions, which led to significant growth in the legacy business. While we do expect this growth to normalize in the coming years, Ritchie Bros provides the company with a very stable base with high barriers to entry in a counter-cyclical industry.”
In a research report released Thursday titled One’s Loss is RB’s Gain, Mr. Gibson initiated coverage of RB Global, previously known as Ritchie Brothers Auctioneers, with an “outperform” recommendation, touting its “much improved” balance sheet following the IAA deal which he thinks provides “optionality to grow its business, including additional land purchases and technology investments, which are in-line with the Copart strategy.”
The analyst set a target of US$105 per share, exceeding the current average on the Street of US$96.63.
“Given strong tailwinds in vehicle total frequency loss, we believe RB’s auto salvage business (IAA) is poised to grow, while it is now much better positioned to win some market share from its largest competitor. The company’s legacy business (Ritchie Bros) also provides RB with a stable base in a counter-cyclical industry, with high barriers to entry,” he concluded.