CIGI - Colliers International: EBITDA Beat And Unchanged Guidance Reinforce My Buy Rating

2023-08-03 05:59:46 ET

Summary

• Colliers International's Q2 2023 revenue met market expectations, while its second quarter EBITDA came in above consensus estimates by +3.7%.
• CIGI is sticking to its earlier guidance of positive normalized EBITDA and adjusted EPS growth for fiscal 2023.
• My Buy rating for CIGI remains unchanged, considering its Q2 2023 EBITDA beat and unchanged guidance for FY 2023.

Elevator Pitch

I rate Colliers International Group Inc. ( CIGI ) ( CIGI:CA ) stock as a Buy. My prior write-up published on April 17, 2023 touched on CIGI's recent M&A transaction and the company's fiscal 2023 financial outlook.

For the current article, my focus is on Colliers International's recently announced financial results for the second quarter of this year, and the company's guidance for fiscal year 2023. I don't see any reasons to change my existing Buy rating for CIGI, as its Q2 EBITDA was better than expected and it maintained its current full-year guidance.

CIGI's Q2 EBITDA Beat

Colliers International revealed how the company performed in Q2 2023 with an earnings press release issued on August 2, 2023 before the market opened. CIGI's share price jumped by +8.4% to close at $109.34 on Wednesday, which is a clear indication that investors had a positive view of the company's recent quarterly results.

Revenue for CIGI expanded by +11.6% QoQ from $965.9 million in the first quarter of 2023 to $1,078.0 million for Q2 2023. Colliers International's second quarter top line was largely in line with the sell-side analysts' expectations, as the market's consensus Q2 sales forecast was just marginally higher at $1,087 million (source: S&P Capital IQ).

Colliers International's actual Q2 2023 non-GAAP adjusted EBITDA was $147.1 million, and that was +3.7% better than the sell side's consensus normalized EBITDA projection of $143 million as per S&P Capital I Q data. CIGI's second quarter normalized EBITDA also represented a +40.6% QoQ increase and a +24.8% YoY growth rate.

There were three major factors which led to Colliers International delivering above-expectations EBITDA in the most recent quarter.

The first factor is CIGI's favorable revenue mix with a reasonably high degree of recurring revenues. In the company's Q2 2023 results presentation slides , Colliers International disclosed that almost two-thirds of its normalized EBITDA was derived from recurring revenue sources such as its investment management and outsourcing & advisory businesses. CIGI is relatively less affected by the macroeconomic environment in the short term as compared to its peers, because the company's top line is supported by a significant proportion of recurring revenues.

The second factor is the better-than-expected performance of Colliers International's Leasing business segment. Both Leasing and Capital Markets business are cyclical in nature and their revenue streams are transactional in nature. But CIGI's Leasing business only witnessed a -7% YoY contraction in segment revenue in Q2 2023, while the company's Capital Markets business segment revenue dropped by -39% YoY for the recent quarter. At its Q2 2023 earnings call on August 2, CIGI highlighted that its "Asia Pacific leasing (business revenue) was up 24% year-over-year" in the second quarter with markets like "Korea, Singapore, Japan, India and Australia" being outperformers. In other words, the good results for Colliers International's leasing business operations in Asia boosted the company's overall financial performance.

The third factor is CIGI's inorganic growth strategy. Year-to-date in 2023, Colliers International has executed on three M&A deals, including the acquisition of "New Zealand's leading project manager" , a "top-tier engineering firm" in New South Wales, and a "leading Southwest engineering firm." It is inevitable that Colliers International's organic growth performance, especially the transactional and non-recurring portion of its revenue (e.g. Capital Markets), will be affected by the weak economic environment to some extent. However, Colliers International still has inorganic growth drivers to boost its top line expansion.

Colliers International's Unchanged FY 2023 Guidance

CIGI left the company's fiscal 2023 guidance intact when it released its second quarter results, and this was also a key reason for Colliers International's +8.4% post-results stock price surge on top of its Q2 EBITDA beat.

The mid-point of Colliers International's unchanged FY 2023 guidance suggests that the company's adjusted EBITDA and normalized EPS are estimated to grow by +10% and +2% to $695 million and $7.10, respectively for the current fiscal year. The expected normalized EPS growth is slower than the projected adjusted EBITDA expansion for CIGI because of the company's interest cost burden. But it is impressive that Colliers International thinks it can achieve positive earnings growth in challenging times like these. Colliers International stressed at its Q2 results call that expense optimization, M&A, and the Outsourcing & Advisory business' growth will be the three main drivers supporting the company's full-year guidance.

Looking beyond 2023, it is noteworthy that CIGI is of the opinion that it can sustain a reasonably fast pace of growth till the end of the decade. At its second quarter results briefing, Colliers International emphasized that "can continue to grow at the same kind of clip we have historically for much further than the current 5-year plan", when asked about the company's prospects between now and 2030.

CIGI's Valuations Are Attractive

Colliers International currently trades at 11.6 times (source: S&P Capital IQ ) consensus forward next twelve months' EV/EBITDA, while CIGI's consensus forward FY 2022-2025 EBITDA CAGR is 15.9%.

I deem CIGI's shares to be undervalued, as its EV/EBITDA valuation multiple is lower than its expected EBITDA growth rate. As an example, a stock is usually seen to be at a fair valuation if it trades at an earnings multiple of 10 times with expectations of delivering a +10% earnings growth rate for the future.

Concluding Thoughts

I continue to award a Buy rating to CIGI's shares. The recent quarterly results announcement didn't change Colliers International's favorable outlook. Despite the difficult economic environment, CIGI continues to guide for positive EBITDA and bottom line growth in the current year, and its valuations are undemanding.

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