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 to increase the value of the property for real estate occupiers, owners and investors.

Q2FY20 Financial Highlights: CIGI announced its quarterly results, wherein the Company posted revenue of USD 550.206 million, reflecting a decline of 26% on y-o-y basis. The decline was primarily attributable to a lower performance from the Leasing and Capital Markets segment within the Americas region coupled with declining revenue in each service line from the EMEA region. Income from the Outsourcing & Advisory segment slide ~9% on y-o-y basis, while Leasing and Capital Markets were down by 46% and 30%, respectively on year-on-year basis. Operating earnings, during the quarter, came at USD 14.523 million, as compared to USD 57.198 million in Q2FY19, primarily due to a lower income, higher depreciation and amortization of intangible assets, partially supported by lower selling, general and administrative expenses. Adjusted EBITDA came at USD 59.962 million, as compared to USD 87.323 million, a year ago. Net earnings plunged to USD 6.483 million as compared to USD 35.575 million in pcp, primarily attributable 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: EV to EBITDA Based (Illustrative)

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

Stock Recommendation: The stock corrected ~11% so far this year due to weak investors sentiment. The company has marked its presence in the greater Nashville area, with the acquisition of Colliers International Nashville in the recent past. The management stated that the group would continue to build on its market leadership position by increasing service capabilities and leveraging the vast resources of Colliers’ growing and innovative platform. The Nashville area is one of the leading real estate places and has business-friendly environment. During the quarter, the company completed USD 230 million offerings of convertible notes, which would support the company’s liquidity. 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. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like FirstService Corp, Altus Group Ltd (Ontario). Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 89.84 on September 28, 2020.

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

Genworth MI Canada Inc.

Genworth MI Canada Inc. (TSX: MIC) is one of the leading private-sector residential mortgage insurers in Canada and offers mortgage default insurance across the region. The Company has built a broad underwriting and distribution platform across the country that provides customer-focused products and support services to the residential mortgage lenders and originators.

Q2FY20 Financial Highlights: Genworth MI announced its quarterly results, wherein the Company reported premium earned of CAD 172 million, up 2% over the previous corresponding period (pcp). The Company's net operating income was reported at CAD 101 million, reflecting a fall of 16% over Q2FY19, primarily attributable to higher losses on claims and lower investment income, partially offset by higher premiums earned and lower expenses. Net income stood at CAD 98 million, down 11% on y-o-y basis, due to a lower net operating income, partially offset by a lower level of realized and unrealized losses from investments, derivatives and foreign exchange. The company reported its loss ratio in terms of premiums earned at 27%, significantly higher than 14% in pcp. The company reported its regulatory capital ratio at ~169%, up 12 percentage points than the Company's internal MICAT ratio target of 157%. The Company reported Transactional Premiums Written at CAD 167 million, reflecting a decline of 11% on y-o-y basis; however, transactional premium written increased 51% on a sequential basis.

Q2FY20 Financial Highlights (Source: Company Reports)

Risks: Due to the current challenging environment, the Company’s insurance premium collection could be adversely impacted, which might result in a lower ‘premium earned’ in the coming quarters.

Valuation Methodology: Price to Book Value Based (Illustrative)

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

Stock Recommendation: The stock tumbled ~32% so far this year. Over the years, the company reported a strong business model and focuses on disciplined risk management and prudent loss mitigation strategies, which resulted in stable business performance. Despite a slowdown, the company posted an improvement in total premium earned, which is commendable looking at the economic scenario. We believe, the decline in net income was due to higher losses on claims, which is expected to decline as the overall economy stabilizes. The quarter was characterized by higher premiums earned, which is encouraging. The company reported return on equity at ~11% for Q2FY20, in line with the previous corresponding quarter, which is impressive. The company has a strong balance sheet with the regulatory capital ratio at 169%, which is significantly above the regulatory requirement of 150%. The company continued with dividend distribution to its shareholders, which is an indication of higher financial flexibility. At the last traded price, the MIC stock was offering a dividend yield of 6.26%, which would attract several income investors. We have valued the stock using Price to Book value-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 Fiera Capital Corp, Equitable Group Inc and Home Capital Group Inc etc., as a peer group. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 35.35 on September 28, 2020.

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

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