Rocky Mountain Equipment - A former crew member is brought aboard

A Prolonged Introduction

I been down so long it seem like up to me - so goes the refrain of an old blues song, I Will Turn Your Money Green by Furry Lewis.

For those with the short-term view, this could apply to RME.  A look at the chart for RME shows the cyclical nature of RME's worth in the eyes of investors.  In the last 12 months the share price declined by more than 30 percent and, in contrast to most of its peers, the price has not rebounded in 2019.

However, Rocky Mountain has good bones and its management knows how to dance to the rhythm of the agricultural sector.  If RME could have a corporate poem, it would likely be this:

Sure On This Shining Night

Sure on this shining night
Of star made shadows round,
Kindness must watch for me
This side the ground. 
The late year lies down the north.
All is healed, all is health.
High summer holds the earth. 
Hearts all whole.
Sure on this shining night I weep for wonder wand'ring far
alone
Of shadows on the stars.

This was written by James Agee.  A remarkable author, he was involved with the screen play for The African Queen.  He also produced a book on share croppers, Let Us Now Praise Famous Men in concert with the famous photographer, Walker Evans.  The experience, no doubt, influenced the thinking behind the poem.

Incidentally, it has been put to music by two composers:

Sure on this Shining Light - James Barber

Sure on this Shining Light - Morten Lauridsen

I was stunned by Lisa Fischer's rendering of the song in 20 Feet From Stardom - the first time I heard it ... and perhaps the best rendition (all parts were sung by her) ... too bad that the production quality was not better.  If ever you have the chance to hear her live in concert, run - don't walk to buy tickets.

And here is Morten Lauridsen's rendition:  Lauridsen

Yes ... there's far more to life than the search for money.

Why Invest Now?  

1.   Good Bones

• Management is experienced and has a long affiliation with RME.  It understands the business - guys with "muddy boots". 
• The balance sheet is conservative.
• RME is in a position to manoeuvre: it has established an outlet for used Canadian equipment in a US farming community with needs for similar equipment - this to take advantage of currency differentials and to lower transportation costs by backhauling equipment to the US from Canada; and, it continues to acquire dealerships.
• Rocky Mountain has a record of successfully integrating new acquisitions into its network.  This reduces back office costs and enables RME to negotiate better terms with manufacturers than standalone dealers. 
• The current stock price is below book value and the P/E ratio is low in comparison with its peers.  (The recent drop in profitability is likely a transient state and I figure that it has spooked investors unduly.) 
• While its leverage is high, the debt is manageable in the present environment of low profitability.  Long term debt has slowly been reduced.   
• RME is out of favour and forward earning forecasts are not bright (as if they are ever all that accurate).  Inventories are high and the turnover rate is low in comparison with years previous with the result that it burdens carrying costs.  However, things change and Rocky Mountain is well positioned to make significant profits when things improve. 

2.   Conditions Are Likely to Change - agriculture is cyclical

• Trump is under great pressure from his key supporters to reduce tariffs on steel and aluminium - something that should benefit equipment prices as by some estimates, they have added about 5 percent to retail prices.  
• Trump's trade policies have hurt his farm community base: it appears that cracks are starting to weaken his support - pocket books trump tweets.  
• Commodity prices are low but they will recover eventually.  RME pays a healthy dividend for investors who are prepared to wait for the recovery in commodity prices.  

Where to From Here?

The following article presents a useful overview of the challenges facing farm equipment dealers at present:

Dealer Financials Improving, But More Work Needed

Although the data is from 2017, it provides a useful baseline for evaluating dealerships.  I'll use it to assess other dealership networks such as Cervus.  

This is the first foray into re-investing in agriculture.  I'm now looking closely at equipment manufacturers.  A key consideration will be their financial health.  I am mindful of the spectre of major economic dislocation as a result of trade disputes, geopolitical events and the like, and will be conservative.  The Financial Log Book portfolio has been constructed with this in mind.