Intrinsic value of Ritchie Bros. Auctioneers Incorporated - RBA

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$41.50

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$41.50

 
Intrinsic value

$26.71

 
Up/down potential

-36%

 
Rating

sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of RBA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 4.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  9.76
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
Revenue, $m
  765
  828
  893
  961
  1,031
  1,104
  1,180
  1,260
  1,342
  1,427
  1,517
  1,609
  1,706
  1,807
  1,912
  2,021
  2,136
  2,255
  2,380
  2,510
  2,647
  2,789
  2,938
  3,095
  3,258
  3,429
  3,609
  3,797
  3,993
  4,200
  4,416
Variable operating expenses, $m
 
  566
  609
  655
  702
  751
  801
  854
  909
  966
  1,026
  1,075
  1,139
  1,206
  1,276
  1,350
  1,426
  1,506
  1,589
  1,676
  1,767
  1,862
  1,962
  2,066
  2,176
  2,290
  2,410
  2,535
  2,667
  2,804
  2,949
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  591
  566
  609
  655
  702
  751
  801
  854
  909
  966
  1,026
  1,075
  1,139
  1,206
  1,276
  1,350
  1,426
  1,506
  1,589
  1,676
  1,767
  1,862
  1,962
  2,066
  2,176
  2,290
  2,410
  2,535
  2,667
  2,804
  2,949
Operating income, $m
  174
  262
  283
  306
  329
  354
  379
  405
  433
  461
  491
  535
  567
  600
  635
  672
  710
  749
  791
  834
  879
  927
  976
  1,028
  1,083
  1,139
  1,199
  1,261
  1,327
  1,395
  1,467
EBITDA, $m
  229
  326
  352
  379
  406
  435
  465
  496
  529
  563
  598
  634
  672
  712
  753
  797
  842
  889
  938
  989
  1,043
  1,099
  1,158
  1,220
  1,284
  1,352
  1,422
  1,496
  1,574
  1,655
  1,740
Interest expense (income), $m
  8
  28
  32
  35
  39
  43
  47
  51
  55
  60
  65
  69
  75
  80
  85
  91
  97
  103
  110
  117
  124
  132
  139
  148
  156
  165
  175
  184
  195
  206
  217
Earnings before tax, $m
  176
  234
  252
  271
  290
  311
  332
  354
  377
  401
  426
  465
  492
  520
  550
  580
  612
  646
  681
  717
  755
  795
  837
  881
  926
  974
  1,024
  1,077
  1,132
  1,190
  1,250
Tax expense, $m
  50
  63
  68
  73
  78
  84
  90
  96
  102
  108
  115
  126
  133
  140
  148
  157
  165
  174
  184
  194
  204
  215
  226
  238
  250
  263
  277
  291
  306
  321
  338
Net income, $m
  124
  171
  184
  198
  212
  227
  243
  259
  275
  293
  311
  340
  359
  380
  401
  424
  447
  471
  497
  523
  551
  580
  611
  643
  676
  711
  748
  786
  826
  869
  913

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  281
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,161
  2,034
  2,194
  2,361
  2,534
  2,714
  2,900
  3,095
  3,297
  3,507
  3,726
  3,954
  4,191
  4,439
  4,697
  4,966
  5,247
  5,541
  5,847
  6,168
  6,503
  6,853
  7,220
  7,603
  8,005
  8,426
  8,866
  9,328
  9,812
  10,319
  10,850
Adjusted assets (=assets-cash), $m
  1,880
  2,034
  2,194
  2,361
  2,534
  2,714
  2,900
  3,095
  3,297
  3,507
  3,726
  3,954
  4,191
  4,439
  4,697
  4,966
  5,247
  5,541
  5,847
  6,168
  6,503
  6,853
  7,220
  7,603
  8,005
  8,426
  8,866
  9,328
  9,812
  10,319
  10,850
Revenue / Adjusted assets
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
Average production assets, $m
  786
  850
  917
  987
  1,059
  1,134
  1,212
  1,294
  1,378
  1,466
  1,557
  1,653
  1,752
  1,855
  1,963
  2,076
  2,193
  2,316
  2,444
  2,578
  2,718
  2,864
  3,018
  3,178
  3,346
  3,522
  3,706
  3,899
  4,101
  4,313
  4,535
Working capital, $m
  169
  -87
  -94
  -101
  -108
  -116
  -124
  -132
  -141
  -150
  -159
  -169
  -179
  -190
  -201
  -212
  -224
  -237
  -250
  -264
  -278
  -293
  -309
  -325
  -342
  -360
  -379
  -399
  -419
  -441
  -464
Total debt, $m
  837
  904
  1,006
  1,112
  1,223
  1,338
  1,457
  1,582
  1,711
  1,845
  1,985
  2,131
  2,282
  2,440
  2,605
  2,777
  2,957
  3,144
  3,340
  3,545
  3,759
  3,983
  4,217
  4,463
  4,719
  4,988
  5,270
  5,565
  5,874
  6,198
  6,537
Total liabilities, $m
  1,233
  1,300
  1,402
  1,508
  1,619
  1,734
  1,853
  1,978
  2,107
  2,241
  2,381
  2,527
  2,678
  2,836
  3,001
  3,173
  3,353
  3,540
  3,736
  3,941
  4,155
  4,379
  4,613
  4,859
  5,115
  5,384
  5,666
  5,961
  6,270
  6,594
  6,933
Total equity, $m
  928
  734
  792
  852
  915
  980
  1,047
  1,117
  1,190
  1,266
  1,345
  1,427
  1,513
  1,602
  1,696
  1,793
  1,894
  2,000
  2,111
  2,226
  2,347
  2,474
  2,606
  2,745
  2,890
  3,042
  3,201
  3,367
  3,542
  3,725
  3,917
Total liabilities and equity, $m
  2,161
  2,034
  2,194
  2,360
  2,534
  2,714
  2,900
  3,095
  3,297
  3,507
  3,726
  3,954
  4,191
  4,438
  4,697
  4,966
  5,247
  5,540
  5,847
  6,167
  6,502
  6,853
  7,219
  7,604
  8,005
  8,426
  8,867
  9,328
  9,812
  10,319
  10,850
Debt-to-equity ratio
  0.902
  1.230
  1.270
  1.310
  1.340
  1.370
  1.390
  1.420
  1.440
  1.460
  1.480
  1.490
  1.510
  1.520
  1.540
  1.550
  1.560
  1.570
  1.580
  1.590
  1.600
  1.610
  1.620
  1.630
  1.630
  1.640
  1.650
  1.650
  1.660
  1.660
  1.670
Adjusted equity ratio
  0.344
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361
  0.361

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  124
  171
  184
  198
  212
  227
  243
  259
  275
  293
  311
  340
  359
  380
  401
  424
  447
  471
  497
  523
  551
  580
  611
  643
  676
  711
  748
  786
  826
  869
  913
Depreciation, amort., depletion, $m
  55
  64
  68
  73
  77
  82
  86
  91
  96
  102
  107
  100
  106
  112
  118
  125
  132
  140
  147
  155
  164
  173
  182
  191
  202
  212
  223
  235
  247
  260
  273
Funds from operations, $m
  254
  235
  252
  270
  289
  309
  329
  350
  372
  394
  418
  439
  465
  492
  520
  549
  579
  611
  644
  679
  715
  753
  793
  834
  878
  923
  971
  1,021
  1,073
  1,128
  1,186
Change in working capital, $m
  14
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Cash from operations, $m
  240
  250
  259
  277
  296
  316
  337
  358
  380
  403
  427
  449
  475
  502
  531
  560
  591
  623
  657
  692
  729
  768
  808
  851
  895
  941
  990
  1,041
  1,094
  1,150
  1,209
Maintenance CAPEX, $m
  0
  -47
  -51
  -55
  -59
  -64
  -68
  -73
  -78
  -83
  -88
  -94
  -100
  -106
  -112
  -118
  -125
  -132
  -140
  -147
  -155
  -164
  -173
  -182
  -191
  -202
  -212
  -223
  -235
  -247
  -260
New CAPEX, $m
  -26
  -65
  -67
  -70
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -99
  -103
  -108
  -113
  -117
  -123
  -128
  -134
  -140
  -146
  -153
  -160
  -168
  -176
  -184
  -193
  -202
  -212
  -222
Cash from investing activities, $m
  -158
  -112
  -118
  -125
  -131
  -139
  -146
  -154
  -162
  -171
  -179
  -189
  -199
  -209
  -220
  -231
  -242
  -255
  -268
  -281
  -295
  -310
  -326
  -342
  -359
  -378
  -396
  -416
  -437
  -459
  -482
Free cash flow, $m
  82
  138
  141
  153
  165
  177
  190
  204
  218
  232
  248
  260
  276
  293
  311
  329
  349
  369
  390
  411
  434
  458
  483
  508
  536
  564
  594
  625
  657
  691
  727
Issuance/(repayment) of debt, $m
  685
  99
  102
  106
  111
  115
  119
  124
  129
  134
  140
  146
  152
  158
  165
  172
  180
  188
  196
  205
  214
  224
  234
  245
  257
  269
  282
  295
  309
  324
  340
Issuance/(repurchase) of shares, $m
  -17
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  641
  99
  102
  106
  111
  115
  119
  124
  129
  134
  140
  146
  152
  158
  165
  172
  180
  188
  196
  205
  214
  224
  234
  245
  257
  269
  282
  295
  309
  324
  340
Total cash flow (excl. dividends), $m
  723
  237
  243
  259
  275
  292
  310
  328
  347
  367
  387
  405
  428
  451
  476
  501
  528
  556
  585
  616
  648
  682
  717
  754
  792
  833
  875
  920
  966
  1,015
  1,066
Retained Cash Flow (-), $m
  22
  -55
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -82
  -86
  -89
  -93
  -97
  -101
  -106
  -111
  -116
  -121
  -127
  -132
  -139
  -145
  -152
  -159
  -167
  -175
  -183
  -192
Prev. year cash balance distribution, $m
 
  249
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  431
  186
  199
  213
  227
  242
  258
  274
  291
  308
  323
  342
  362
  383
  404
  427
  450
  475
  500
  527
  555
  585
  615
  647
  681
  716
  753
  792
  832
  874
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  408
  166
  167
  167
  165
  162
  158
  153
  146
  138
  128
  119
  109
  98
  88
  78
  68
  58
  49
  41
  33
  27
  21
  16
  12
  9
  7
  5
  3
  2
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Ritchie Bros. Auctioneers Incorporated, together with its subsidiaries, sells industrial equipment and other assets for the construction, agricultural, transportation, energy, mining, forestry, material handling, marine, and real estate industries through its unreserved auctions and online marketplaces. The company operates through two segments, Core Auction and EquipmentOne. The Core Auction segment operates a network of auction locations that conduct live and unreserved auctions with on-site and online bidding. The EquipmentOne segment operates a secure online marketplace that facilitates private equipment transactions. It also provides technology services, including software and technology solutions to auction companies to conduct live and online bidding; and value added services. The company primarily sells equipment to its customers through unreserved auctions at approximately 44 auction sites in North America, Central America, Europe, the Middle East, Australia, New Zealand, and Asia. Ritchie Bros. Auctioneers Incorporated was founded in 1958 and is headquartered in Burnaby, Canada.

FINANCIAL RATIOS  of  Ritchie Bros. Auctioneers Incorporated (RBA)

Valuation Ratios
P/E Ratio 35.8
Price to Sales 5.8
Price to Book 4.8
Price to Tangible Book
Price to Cash Flow 18.5
Price to Free Cash Flow 20.7
Growth Rates
Sales Growth Rate 9.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.3%
Cap. Spend. - 3 Yr. Gr. Rate -11.9%
Financial Strength
Quick Ratio 9
Current Ratio 0.2
LT Debt to Equity 86.7%
Total Debt to Equity 90.2%
Interest Coverage 23
Management Effectiveness
Return On Assets 7.1%
Ret/ On Assets - 3 Yr. Avg. 9.3%
Return On Total Capital 8.7%
Ret/ On T. Cap. - 3 Yr. Avg. 12.1%
Return On Equity 13.2%
Return On Equity - 3 Yr. Avg. 15.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 88.4%
Gross Margin - 3 Yr. Avg. 88.5%
EBITDA Margin 31.2%
EBITDA Margin - 3 Yr. Avg. 37.2%
Operating Margin 22.7%
Oper. Margin - 3 Yr. Avg. 26.6%
Pre-Tax Margin 23%
Pre-Tax Margin - 3 Yr. Avg. 28%
Net Profit Margin 16.2%
Net Profit Margin - 3 Yr. Avg. 20.5%
Effective Tax Rate 28.4%
Eff/ Tax Rate - 3 Yr. Avg. 26%
Payout Ratio 76.6%

RBA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RBA stock intrinsic value calculation we used $765 million for the last fiscal year's total revenue generated by Ritchie Bros. Auctioneers Incorporated. The default revenue input number comes from 2016 income statement of Ritchie Bros. Auctioneers Incorporated. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our RBA stock valuation model: a) initial revenue growth rate of 8.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.4%, whose default value for RBA is calculated based on our internal credit rating of Ritchie Bros. Auctioneers Incorporated, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Ritchie Bros. Auctioneers Incorporated.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of RBA stock the variable cost ratio is equal to 68.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for RBA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Ritchie Bros. Auctioneers Incorporated.

Corporate tax rate of 27% is the nominal tax rate for Ritchie Bros. Auctioneers Incorporated. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the RBA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for RBA are equal to 102.7%.

Life of production assets of 16.6 years is the average useful life of capital assets used in Ritchie Bros. Auctioneers Incorporated operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for RBA is equal to -10.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $928 million for Ritchie Bros. Auctioneers Incorporated - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 105.019 million for Ritchie Bros. Auctioneers Incorporated is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Ritchie Bros. Auctioneers Incorporated at the current share price and the inputted number of shares is $4.4 billion.


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