National Bank Financial analyst Maxim Sytchev said structural improvements made by RB Global Inc. (RBA-N, RBA-T) to the legacy operations at IAA reinforce his confidence in a “multiple expansion thesis.”
Vancouver-based RB Global, formerly known as Ritchie Bros. Auctioneers Inc., acquired U.S. auto retailer IAA Inc. in a US$7-billion deal in March of 2023 after overcoming criticism from two proxy advisory firms.
“Tough construction equipment comps are generally well understood by the market when it comes to the short-term, but the ultimate upside resides within the IAA business at the moment,” said Mr. Sytchev. “We are actually positively surprised by the speed/magnitude of IAA’s progress; as a result, the multiple expansion dynamic does not hinge on FUTURE improvements but should reflect current advancements. With RBA having traded historically at close to 30 times NTM [next 12-month] P/E and Copart at 34 times 2025 estimates, there is still material upside in this defensive name.”
Mr. Sytchev said recent conversations with North American insurance carriers and consultants point to IAA “closing the gap” on rival Copart Inc. (CPRT-Q).
“We held a number of due-diligence calls on the back of recent marketing where we heard management reiterate its strategic initiatives to improve IAA’s market share vs. Copart in the salvage auction oligopoly,” he said. “Our purpose was to gauge if insurance customers are seeing the same improvements in IAA vs. a year ago.”
“Improvements are tangible. While nature of the calls was more qualitative contextually, insurance carrier feedback has been uniformly consistent regarding improvements. While challenging to quantify, our sense is that the Copart/IAA gap in terms of cycle time (delta between an event and the vehicle ending up on auction block) has moved from negative 25 per cent/negative 30 per cent before the transaction to somewhere in negative 5/negative 10-per-cent range now; title management, tech investments (hence VIN-level data), better utilizing towing capacity and alignment of KPIs at the yard level with compensation are all leading to tangible improvements. As a result, these improvements have been well-received by customers who see IAA on a much more equal footing with Copart on the value proposition they can offer to insurance carriers.”
The analyst reaffirmed an “outperform” rating and US$90 target for RB Global shares. The average is US$90.90.