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.

Recently, the Company reported a sale of 1,797,359 common shares at a price consideration of US$ 83.46 per share to Durable Capital Partners LP through a private placement. The fund (~USD 150 million) will be used for the repayment of its existing debt under the revolving credit facility, a part of the funds will be allocated for future acquisitions while the rest would be used for the working capital and general corporate purposes.

Q1FY20 Financial Highlights: FSV impresses with its quarterly numbers, and reported revenue of USD 633.83 million, grew significantly from USD 485.65 million in Q1FY19. The increase was aided by a robust organic growth coupled with a positive impact from the Global Restoration acquisition. Operating earnings stood higher at USD 15.98 million, up from USD 12.93 million in the previous corresponding quarter, thanks to the substantial revenue growth. The Company reported a slump in its net earnings to USD 5.78 million from USD 8.14 million in Q1FY19 primarily attributable to a significant rise in interest expense. Adjusted EBITDA stood at USD 43.86 million, as compared to USD 29.15 million in the previous corresponding quarter, supported by a shift in mix of the businesses. The Company exited the quarter with cash and cash equivalents of USD 118.22 million while total assets stood at USD 1,922.29 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: EV/ Sales Based Relative Valuation (Illustrative)

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

Stock Recommendation: The FSV stock appreciated ~10% in the last six months and currently trading closer to its 52-week high, amidst a major setback in the broader market. Investors should note that the stock is trading above the 100-days and 200-days simple moving average (SMA) of CAD 124.2 and CAD 125.76, which is positive. The business showed improved performance, driven by the recent acquisition; however, management expects that second-quarter revenue and bottom line to be significantly affected owing to COVID-19 pandemic. Accumulation of funds from the private placement would ensure liquidity in the near term and help in reducing the finance cost as the group is focusing on lowering its debt, which would further enhance the profitability. We have valued the stock using EV/ sales based relative valuation approach and considered peers like Colliers International Group Inc (TSX: CIGI), Altus Group Ltd (TSX: AIF), CCL Industries Inc (TSX: CCL.B) etc. and arrived at a target price offering high single-digit upside potential (in % terms).  Hence, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 132.47 as on June 11, 2020 and look for a better entry point.

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

Information Services Corporation 

Information Services Corporation (TSX: ISV) is the leading provider of registry and information management services for public data and records. The Group operates through three lines of businesses, namely, Registry Operations, Services and Technology Solutions.

The Board of Directors declared a quarterly cash dividend of CAD 0.20 per share, payable on or before July 15, 2020

Q1FY20 Financial Highlights: ISV released its quarterly results and posted a higher revenue of CAD 29.59 million, as compared to CAD 28.61 million in the previous corresponding quarter. The increase in revenue was driven by organic growth from existing customers along with the addition of new clients in the services segment and sustained execution of contracts within the Technology Solutions space. Adjusted EBITDA grew marginally to CAD 7.89 million against CAD 7.80 million in pcp while Adjusted EBITDA margin softens to 26.7% from 27.3% in Q1FY19. The quarter was marked by a higher wages and salaries costs, cost of goods sold and depreciation & amortization expenses while lower Information technology service costs, occupancy costs, lower professional and consulting services supported the bottom-line. Net income grew to CAD 3.47 million, from CAD 3.01 million in the previous corresponding quarter. At the end of the quarter, the Company reported a cash balance of CAD 21.16 million, while total assets stood at CAD 167.16 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The group caters to the governments and private sector organizations like financial and legal organizations and provides essential public records and data. The group is expecting lower volume Registry Operations and Services segments for the rest of 2020 owing to the COVI-19 impact. The group also believe that recognition of revenue is likely to be delayed owing to the pandemic. As a result, the group’s financial performance is likely to be impacted adversely in the near term. Investors should note that the stock of ISV has corrected ~6% so far this year and outperformed the benchmark index by ~6%.  At the last traded price, the stock traded above the 20-days and 50-days simple moving average (SMA) of CAD 14.17 and CAD 14.22, respectively, indicating a bullish trend. The Company is likely to explore appropriate acquisition targets which are complementary to or add value to existing lines of business. The stock carries a lucrative dividend yield of 5.40%, which is attractive amidst the current interest rate scenario. The stock is trading at a forward P/E multiple of 15.5x, which is in line with the industry (real estate operations) average of 16.9x. Hence, based on the aforementioned rationale, we recommend a ‘Watch’ stance on the stock at the closing price of CAD 14.40 on June 11, 2020 and look for the growth catalyst.

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.