# Rocky Mountain Dealerships (TSX:RME)



## leeder (Jan 28, 2012)

I'm just wondering if anyone has looked into or is currently owning Rocky Mountain Dealerships. I've looked at this periodically over the past year. It has a dividend yield of about 2.25% and the payout ratio is about 20 times earnings. It raised its dividend last year. The company does not seem to have much debt, and it is currently growing by acquiring smaller equipment companies (i.e., essentially consolidating the space). What the company does is provide agricultural equipment to retail stores in the prairie provinces. Farmers will always require equipment annually (if not annually, then at least every couple years). On a big picture standpoint, it seems to me that this company would fit well along side with the fertilizer companies.

Anyone has any experience or has looked into RME?


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## PMREdmonton (Apr 6, 2009)

An initial look at the numbers and business model suggests you may have found yourself a good micro-cap to follow along as it grows. If it can be a serial acquirer at good prices and decrease competition it could become a big winner. I`m just not sure about who is its competition.

I`ll try to look into them in more detail later.


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## leeder (Jan 28, 2012)

Thanks, PMREdmonton. A second look from someone else and further discussion is certainly a good thing. One recent article from the Globe & Mail describes the company further (link). Can't think of larger companies in this space...


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## doctrine (Sep 30, 2011)

Pros:

-On the financials, they have a P/E of 12 and a dividend payout ratio of about 25%. 
-They don't have too much goodwill and intangibles (about $32M), which is 14% of their market cap
-They have about $40M of long term debt, which again isn't too high.
-Big dividend increase last year, by 50% from 4.5 cents to 6.75 cents

Cons:

-On the balance sheet, they have $300M of inventory as a liability, which is probably the biggest risk
-Their net earnings are down about 15% over last year, and the stock price is up 20-30% so it's not as good of a deal as it used to be
-The number of shares increased 2% last year due to options
-They have 1.2 million options outstanding vs 18.8 million shares total - that's 6.4% of the company, quite a lot. Might not be a problem if sales increase 10% every year

If you don't mind the low yield, it's probably not a bad company. There is certainly room to grow it although they only have one dividend increase in their 5-6 year history. As long as you don't mind owning a retailer and taking the inventory risk. If the stock price does drop, many of the options will expire as they're on average in the money around $12.


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## PMREdmonton (Apr 6, 2009)

Posters ahead made some good points.

A couple of other things is there business is strongest in the 4th quarter and they appear to have a major run-up leading to their earnings announcement each of the past 3 years. There hasn`t been much of a run-up yet this year so there may be one coming up.

They appear to have doubled revenue in the past four years while maintaining gross and operating margins.

Despite being serial acquirers Book value per share has just about doubled in the last four years which is a sign to me of quality management choosing acquisitions that are accretive in nature. Debt has been kept to manageable levels versus assets.

Most of their revenues still come from new more than used equipment sales with maintenance trailing. Hopefully over time they`ll get more revenue from the latter category which I`d assume is less volatile.

The big negative to me is they seem to carry a lot of inventory compared to sales with inventory turnover of only 2. I`d hope that as they expand they`ll learn to manage inventories better so as not to have so much capital tied up in inventory and thereby generate better ROA.

I`ve got to say this company is getting very interesting with Sales now getting close to $1B per year and a market cap of only $226M, PE 11.3, PB 1.76, Divy 2.2, LTdebt to equity of 33%. There appears to be a long runway yet for further acquisitions of small private companies that will feed future growth. They are in a bit of a growth industry with expected increased spending on agriculture equipment to produce more food for an expanding world food needs.

I think this is a good candidate for the speculative part of one`s portfolio given their small cap nature, limited number of years as a public company and geographic concentration risk.


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## leeder (Jan 28, 2012)

Thanks doctrine and PMREdmonton for your analysis. One thing I'll have to take a look at is RME's cash flow, since they are serial acquirers. I have some small to mid caps in my portfolio and certainly young enough to deal with the risk. This company is potentially the smallest in my portfolio. However, I do like where this company is headed. I'll have to look into what they are doing with their inventory.


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## BullAllTheWay (Feb 29, 2012)

A competitor would be Cervus Equipment (CVL).


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## PMREdmonton (Apr 6, 2009)

Cervus seems to focus more on Deere dealerships but has the same focus on agriculture and construction.

One thing that stands out to me between the two is CVL turns over its inventory 4 times a year compared to only 2 for RME - is CVL more efficient. Nevertheless, they don`t seem to have better net or operating margins or ROA.

Both are serial acquirers and have been rapidly growing sales the last five years and have increased BV per share by a large margin.

It looks like CVL has been the better stock over the last 5 years with about a 30% capital gain and a 3.9% divy. RME has gained nothing and only has a 2.2% divy. It`ll be interesting to see who is stronger over the next few years.


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## leeder (Jan 28, 2012)

RME probably has better potential to grow than CVL. However, CVL is also quite attractive now that I look closer, with a higher dividend yield to boot. I'll have to monitor these stocks closely.


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## james4beach (Nov 15, 2012)

The balance sheet looks pretty sensible overall. Their net income is all over the place though. Q1 and Q2 net income was much less than previous quarters and much less than a year ago. Basically the earnings trend is negative. To invest in something small like this, you need to see earnings growing over time. At a quick glance, I don't think their earnings trend justifies the big rally in the stock price, unless their next quarter is expected to be very very strong.

2011 Q1: $2.7 million
2011 Q2: $4.5 million
2011 Q3: $7.1 million
2011 Q4: $8.9 million
2012 Q1: $2.2 million
2012 Q2: $1.6 million
2012 Q3: $8.5 million


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## james4beach (Nov 15, 2012)

I also want to mention that before investing in an individual stock, particularly a micro-cap such as this, make sure you actually read the full financial statements (the last annual report and most recent quarters) in full -- including all notes to the financial statements. And of course you should read every quarterly report that comes out... not just the press release, but the full financial statements.

It's a lot of work... which is why I hardly ever invest in individual stocks.


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## BullAllTheWay (Feb 29, 2012)

I hold CVL. RME is good too, but I prefer Cervus. The company is growing abroad, which gives better diversification. It also has been more active with acquisitions, and very effective to integrate them. I think it's the best of breed. Selling Deere products is a big plus too -- they are also the best.


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## doctrine (Sep 30, 2011)

48% dividend increase from RME and great quarter of revenue and earnings growth to boot. Looks like it's done quite well in the last 3-4 months as well.

http://www.newswire.ca/en/story/116...-results-and-a-48-increase-in-annual-dividend


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## Freedom45 (Jan 29, 2011)

Anyone holding/watching RME these days? They announced the appointment of a new pres/CEO on Feb 2nd.

I've got a small position, that is slightly in the red. Considering picking up a few additional shares to lower my ACB. Theoretically a medium-long term hold for me.


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## Ethan (Aug 8, 2010)

Rocky Mountain released their 2015 annual results last night. Facing the dual headwinds of a slow Alberta economy and a weak Canadian dollar, RME still generated earnings of $0.58/share. This easily cover the annual dividend of $0.46/share. The share price is so depressed the dividend is up to 7.9%. RME's market cap is now $112 million, or 2/3 of their book value of $170 million.

RME seems to be a similar story to WestJet and AutoCanada, in that it is being excessively punished due to it's exposure to Alberta. I picked up 1,000 more shares this afternoon.


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## Spudd (Oct 11, 2011)

I picked up some of this about a month ago, sitting at -13% now. It looks like a good value at these levels.


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## besmartrich (Jan 11, 2015)

Ethan said:


> Rocky Mountain released their 2015 annual results last night. Facing the dual headwinds of a slow Alberta economy and a weak Canadian dollar, RME still generated earnings of $0.58/share. This easily cover the annual dividend of $0.46/share. The share price is so depressed the dividend is up to 7.9%. RME's market cap is now $112 million, or 2/3 of their book value of $170 million.
> 
> RME seems to be a similar story to WestJet and AutoCanada, in that it is being excessively punished due to it's exposure to Alberta. I picked up 1,000 more shares this afternoon.


Yeah you are right. It seems that RME is overly punished due to its exposure to Alberta. I am getting more interested in this one.


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## Freedom45 (Jan 29, 2011)

Added a bit more to my position yesterday @$5.80.


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