Colliers International Group Inc.

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

Key Highlights:

• Recently, the company confirmed the acquisition of Colliers International Nashville, LLC, wherein, Colliers Nashville shareholders will retain equity in the business under Colliers’ unique partnership model.
• Recently, the company announced the opening of a new company-owned office in Raleigh, North Carolina. The region in the U.S. is one of the most vibrant and fastest-growing regions and is expected to improve the company’s business prospects in the coming days.

Q2FY20 Financial Highlights: Collier declared its quarterly results, wherein the Company posted revenue of USD 550.206 million, as compared to USD 745.517 million in the previous corresponding period (pcp). The period was marked by a decline in the Leasing and Capital Markets activity across the Americas region followed by lower activity in each service line from the EMEA region. A 20% dip in the income from the Asia Pacific also contributed to the revenue decline. Revenue for the Outsourcing & Advisory segment was down by ~9% on y-o-y basis, while Leasing and Capital Markets declined by 46% and 30%, respectively on y-o-y basis. Operating earnings stood considerably lower at USD 14.523 million, against USD  57.198 million in Q2FY19 majorly due to a lower income, increase in the depreciation and amortization of intangible assets, partially supported by lower selling, general and administrative expenses. Adjusted EBITDA, during the quarter, stood at USD 59.962 million, versus USD 87.323 million, a year ago. Net earnings plunged to USD 6.483 million as compared to USD 35.575 million in pcp, due to lower operating income, partially offset by lower interest expense and lower income tax expense. The Company ended the quarter with cash and cash equivalent of USD 147.169 million while total assets stood at USD 2,794.989 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to COVID-19, there might be a reduction in real estate transactions, and the group’s client might reduce their expenditure. This may result in a reduction in the demand for the services the Company provides. Further, a decrease in property values and vacancy rates could negatively impact sales and leasing commissions.

Valuation Methodology: P/CF Based (Illustrative)

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

Stock Recommendation:  The stock of CIGI corrected ~13% so far this year. The business is expected to be benefited from the leadership position by increasing service capabilities and leveraging the vast resources of Colliers’ growing and innovative platform, which is a key positive. We believe, due to a gradual revival of the economy, the Leasing and Capital Markets segment is likely to improve during the second half of the year and would reflect in the company’s top-line. Further, the group stated that the majority of its earnings come from Investment Management and Outsourcing & Advisory segment, which offers high value-add professional services that are recurring and contractual. The group expects Transactional Leasing and Capital Markets revenues to remain below 2019 levels, although the scale of decline is likely to moderate in the third and fourth quarters. Investment Management and Outsourcing & Advisory are expected to remain relatively stable for the balance of the year, with some variability depending on market conditions. Further, to preserve liquidity, the company took strict measures to reduce its costs, which augurs well for the margin. Investors should note that the stock closed above the 200-days simple moving average (SMA) at CAD 86.81, indicating a bullish pattern. We have valued the stock using Price to CF relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered industry (Real Estate Operations) average on NTM basis. Considering the aforesaid facts, current price levels, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 88.10 on September 3, 2020.

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

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