Rocky Mountain hits a rough patch
Also: Legacy Oil and Gas delivers another solid quarter - but still no dividend in sight for shareholders
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at email@example.com
by Max Fawcett
The ride has been put on hold – at least, for now – for investors in Rocky Mountain Dealerships (TSE:RME). The shares of the company, which sells agricultural and construction equipment and machines, are down more than 12 per cent today after it released its 2Q13 results. And while some of the selling is due to the fact that its sales came in light on a year-over-year basis, much of that can be chalked up to the effects of a wet spring and the June floods.
What probably has the markets nervous is the company’s decisions to focus on winding down its inventory of used equipment and to stop offering customers aggressive trade-in terms. Still, as CEO Matthew Campbell said on BNN today, the company is committed to pursuing that strategy. “At Rocky, we’ve said that we’re going to slow that process down a bit. We need the hold period to be longer in the hands of the end-user. We’re the ones that have blinked first.” And while the markets may not like it very much, today’s sell-off doesn’t appear to have weakened the company’s resolve. “That’s the message, and that’s the focus of our company,” he said. “We’re working very hard on right-sizing our used inventory, and we’re getting there.”
The sell-off may present a tempting buying opportunity for investors who have been watching the stock, too. Just a few months ago CIBC slapped a sector outperformer rating and an $18 price target on its shares (they’re bouncing around the $12 level today), noting that the company’s equipment (particularly its Case 600 series Quadtrac machine) will allow it to take market share from its competitors (primarily Deere) while the second half of the year looks more favourable on an operational basis. Caveat emptor: That report was written before both the floods and the decision to curtail the use of its trade-in program. Still, on the bright side, the company announced that it would begin paying a 10cent quarterly dividend to shareholders of record effective August 30.
Meanwhile, Legacy Oil and Gas delivered another quarter of solid results, including the best well that’s it drilled on its Turner Valley acreage to date. The company posted an operating netback of $52.30 in the quarter, which, as FirstEnergy analyst Cody Kwong said, “continues to look very strong and screen well compared to the company’s peer group.” There was still no mention of the much talked about dividend by the company, though. FirstEnergy has a top pick ranking on it and a $9.50 price target – a hefty premium on the $6.20 its shares are trading at today.