FirstService Corporation

FirstService Corporation (TSX: FSV) operates in the essential outsourced property services sector, serving its customers through two industry-leading service platforms, namely FirstService Residential and FirstService Brands. The company caters to the North American market and manages thousands of residential communities, including high, medium and low-rise condominiums and co-operatives.

Key Highlights:

• Acquired Aegis Fire Protection, LLC and Cornet, Inc.: On December 09, 2020, the company’s subsidiary acquired two fire protection companies, which are specialized in the installation, service and inspection of fire sprinkler, alarm and suppression systems, namely, Aegis Fire Protection, LLC and Cornet, Inc. The above transactions would expand the company’s footprint across new markets and would support the company’s top-line growth.
• Solid Top-line Growth: The company recorded a solid top line over the years. The company’s revenue grew at a CAGR of 19% CAGR over the last twenty years, which is commendable and indicates operational resiliency. Two-third of the overall growth is contributed by the organic revenue. 

Source: Company Reports

Q3FY20 Financial Highlights:

• FSV declared its quarterly results and reported revenue of USD 741.932 million, as compared to USD 672.253 million in the previous corresponding period (pcp). The increment was aided by increased contribution from First Service Brands business, which was partially offset by a decline from First Service Residential
• Operating earnings stood at USD 59.130 million versus USD 49.698 million in Q3FY19. The growth was due to an increase revenue, partially offset by a higher cost of sales and increase in the selling, general and administrative expense.
• Adjusted EBITDA came at USD 88.7 million, as compared to USD 77.1 million, a year ago.

Source: Company Reports

• Net earnings stood at USD 40.996 million, as compared to USD 26.336 million in Q3FY19.
• Cash and cash equivalent stood at USD 158.570 million, while total assets stood at USD 2,122.225 million.
• The company reported a significant reduction in its total debt level to USD 604.631 million, from USD 766.623 million in FY19, which resulted to a lower interest expense (USD 5.464 million, versus USD 12.719 million in pcp).

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: An increase in the input costs such as cost of sales, higher SG&A expenses, would dampen the company’s profitability and margins.

Stock Recommendation: The company has a diversified revenue base, which augurs well for a stable operational performance due to a stable risk profile. On the flip side, the group’s FirstService Residential revenues remained marginally below compared to its previous corresponding period, due to closures of client facilities on account of COVID-related which negatively impacted the amenity management services revenue. The reduction of the total debt levels has contributed significantly to the company’s profitability, which is commendable. However, a higher cost of revenues and selling, general and administrative expenses and amortizations remained a drag.  We believe the company’s long-term growth prospective remains intact as the Management is focusing on expanding its footprints across new geographies. On the valuation front, the stock trades at an EV to EBITDA multiple of 20.6x on NTM basis, as compared to the industry (Real Estate Operations) average of 15.3x. Hence, considering the current price levels and valuations, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 171.68 on December 21, 2020.

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

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