A COVID-Resilient Canadian Real Estate Play?

FirstService Corporation (TSX:FSV) shares have climbed 18% since Capital Ideas wrote about the company about six weeks ago

Capital Ideas Media | August 27, 2020 | SmallCapPower:  FirstService Corporation (TSX:FSV) (NASDAQ:FSV) has become an inspiring Canadian growth story, producing 57% average annual returns for shareholders during the past five years.

(Originally published on Capital Ideas Media on July 7, 2020)

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[Editor’s Note: Shares of FirstService Corp. have appreciated 18% since Capital Ideas wrote about the company about six weeks ago.]

FirstService provides outsourced property services, managing residential communities as well as the needs of commercial customers. The Company’s services also include the management of commercial swimming pools, fitness centres, and hotel spas.

FirstService Corp has increased its revenue at a 19% CAGR since 1995, two thirds of that being organic growth, while also acquiring related businesses in what is a large, but still fragmented, market (FirstService has a 6% market share). About 90% of the Company’s revenue comes from the United States.

FirstService’s businesses generate revenue and cash flow that is both highly predictable and recurring.

Perhaps more importantly, though, is FSV has managed to continue growing without excessive shareholder dilution – it has just 43 million shares outstanding.

And while FirstService stock has a sub 1% dividend yield, the Company has increased its investor payout by 65% since 2015.

When FirstService Corporation reported its Q1 2020 financial results, which surpassed analyst revenue and earnings per share expectations, the Company also outlined the impact COVID-19 was having on its operations.

FirstService said all of its businesses have been designated essential services in at least some of their geographic regions and, despite expecting to see a “meaningful decline” in its second quarter year-over-year financial results, the Company has engaged in cost containment measures as well as capital expenditure reductions, which given FSV’s strong balance sheet should allow it to capitalize on future acquisition opportunities.

Raymond James analyst Frederic Bastien recently raised his target price on FirstService stock to US$115 per share from US$100, while maintaining an “Outperform” rating, following the Company’s announced acquisition of the Rolyn Companies, a commercial and large loss restoration services provider with an annual revenue run-rate of about $75 million.

“To us, this switch from defense to offense is further evidence management has better visibility on the direction of the business in a post-COVID world. Amid an uptick in leads and new contract wins recently, we are confident FirstService can stay nimble, capitalize on revenue opportunities and cement its leadership of North America’s highly-fragmented property services market,” Mr. Bastien wrote.

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