Colliers International Group Inc.

Colliers International Group Inc. (TSX: CIGI) is a leading global real estate service and investment management company. The group has presence across 68 countries and provides expert advice and services in order to increase the value of the property for real estate occupiers, owners and investors.

Investment Rationale

Strong Financial Performance: Historically, the business showed a glaring financial performance aided by continuous positive industry dynamics coupled with growing investor’s interest in real estate asset classes. Revenue during FY14 to FY19 grew at a CAGR of 14%, while Adjusted EBITDA and Operating cash flow grew at a CAGR of 20% and 25%, respectively during the period. The business has a low capital investment, and the management focuses on reinvestment to support growth and diversification. Adjusted EPS during FY14 to FY19 grew at a CAGR of 21%.                             

Financial Highlights (FY14-FY19), (Source: Company Presentations)

Cost Savings initiatives: CIGI is focusing on several cost-saving initiatives for all of its segments and expects USD 150 million of cost savings for FY20. In order to combat the current economic cycle, the company took prudent strategies by reducing management salaries, eliminating non-essential expenses and laying off 10% of its workforce. The above steps would support the company near-term working capital and would support the margins as well.

High Insider Ownership: Insider ownership in the group’s stood at ~40%, which is significantly high. Higher insider ownership suggests that the management is bullish on the group’s future performance, which is a positive sign for the investors.

Q3FY20 Financial Highlights: 

• CIGI declared its third-quarter results, and posted revenue of USD 692.307 million, as compared to USD 736.883 million. The decline was primarily attributable to a 17% y-o-y decline in revenue from the Asia Pacific region to USD 110.5 million, coupled with a 15% y-o-y lower revenue from EMEA to USD 117.4 million. However, income from the Americas stood at par with the previous corresponding quarter at USD 422.6 million versus USD 424.3 million and partially supported the overall performance.
• Operating earnings, during the quarter, stood at USD 52.074 million, improved from USD 48.176 million in Q3FY19.
• Adjusted EBITDA stood at USD 92.1 million, higher than USD 84.3 million, a year ago. The company reported net earnings at USD 31.979 million, against USD 28.673 million in Q3FY19, supported by higher operating income, while a higher interest expense remained a drag.
• The Company ended the quarter with cash and cash equivalent of USD 129.19 million while total assets stood at USD 3,327.349 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risk: Due to the extension of lockdown on account of COVID 19 pandemic coupled with a sluggish economic environment, the company might face a lower real estate transaction, which might lead to a decline in the demand of the company’s products and services. 

Valuation Methodology: Price to CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of CIGI soared ~31% and ~26% in the last three months and six months, respectively. The company has a successful investment record coupled with impressive client servicing reputation. At the same time, the industry offers enough room for both organic and inorganic growth, and we believe the company is well-positioned to capitalize on the opportunities. We have valued the stock using Price to CF based relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered peers like Savills PLC, SL Green Realty Corp etc. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 94.20 on October 27, 2020.

CIGI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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