Shares of Colliers International Group Inc. (TSX:CIGI) (NASDAQ:CIGI) have soared about 100% during the past three years
Capital Ideas Media | January 10, 2020 | SmallCapPower: Looking for one of those bedrock stocks for your portfolio? You can’t do much better than real estate company Colliers International Group Inc. (TSX:CIGI) (NASDAQ:CIGI), which is a consistent grower organically and through acquisitions, has diversified business lines and a global footprint, and whose stock is relatively inexpensive.
(Originally published on Capital Ideas Media on December 3, 2019)
CIBC Equity Research has initiated coverage on Colliers with an “outperformer” rating and a price target on the U.S.-listed shares of US$80, which gives the stock nearly 12% upside.
The Canada-listed shares of Colliers have a similar amount of average daily trading volume as the U.S. shares at about 65,000.
Are you ready for some nice, colourful and illustrative charts that tell Colliers story?
All right then. Here are the highlights from CIBC’s initiation report on Colliers International Group:
- Acquisitions Enhance Solid Organic Growth:Colliers has consistently delivered strong organic growth, averaging 9% in the last five years. At the same time, the Company has an active history of consolidation, and acquisitions have contributed to two-thirds of revenue growth.
Acquisitions are organically funded from free cash flow (FCF) and return on invested capital (ROIC) has averaged ~15%. The Company has grown revenue at a compound annual growth rate (CAGR) of 17% and adjusted EBITDA at a CAGR of 24% over the last five years.
CONTRIBUTION OF ACQUISITIVE AND ORGANIC GROWTH
RETURN ON INVESTED CAPITAL: EFFICIENT TRACK RECORD
ADJUSTED EBITDA AND MARGIN HISTORY
Prudent capital allocation and the consolidation opportunity in a highly-fragmented $240 billion market suggest significant mergers and acquisitions potential for Colliers.
FEWER BROKERAGES, MORE SHARE
- We expect mid-single-digit organic growth and forecast modest 3% growth from acquisitions in 2020 vs. the 9% historical average, leaving plenty of room for upside if the Company maintains its typical acquisition activity level.
- More Diversified, More Resilient:Colliers has greatly diversified its revenue mix from its initial focus on the brokerage business, which tends to exhibit cyclicality. Sales and Leasing brokerage comprises ~57% of revenues, from 85% in 2004, as the share of Outsourcing, Advisory and Investment Management revenues has grown.
REVENUE MIX (LHS) AND GEOGRAPHIC FOOTPRINT (RHS)
We view these as high-quality revenue streams, substantially generated through fee-based, multi-year contracts. Outsourcing and advisory revenue growth tends to track in the solid range of low to mid-teens.
COLLIERS’ HISTORICAL REVENUE GROWTH
With greater contractual and recurring revenue mix (about two-thirds of total), Colliers is more defensively positioned for prospective volatility in the brokerage businesses.
RECURRING REVENUES BRING VISIBILITY
- The recent sizeable acquisition of an investment management business further enhances cash-flow predictability through stable, contractual management fees.
- Attractive Relative Valuation:We apply a 10x enterprise value (EV)/EBITDA multiple to our 2020 adjusted EBITDA estimate, resulting in our $80 price target.
- Despite sharing the same underlying fundamentals as real estate landlords and having a majority of cash flows that are contractual and recurring (akin to rent payments), Colliers is trading at a ~10x EBITDA multiple discountto the S&P Real Estate Index vs. 8.5x-9x historically.
- Colliers and peers have traded at a premium to the S&P 500, but are trading at a 2x EBITDA multiple discount, even as the businesses have become more resilient.
- Taking an alternative approach to a sum-of-the-parts valuation and utilizing EBITDA multiples from industries with similar characteristics, we arrive at a ~12.8x EBITDA multiple vs. the current ~9.3x EBITDA valuation, highlighting the large discount for a diversified, steady growth business with high recurring revenues.
COLLIERS INTL GROUP INC (NASDAQ:CIGI) | 3YR CHART
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