2023-05-09 07:48:25 ET
Summary
- CBRE announced its Q1 FY23. Due to increased revenues in the GWS segment, they were able to post positive revenue growth.
- The technical chart of CBRE looks good, and its valuation is also attractive.
- But the short-term headwinds remain, which makes it risky in the short term.
- I assign a hold rating on CBRE stock.
CBRE Group ( CBRE ) is a global commercial real estate services and investment firm. They operate in three segments: global workplace solutions, advisory services, and real estate investment segments. In the global workplace solutions segment, they provide facilities management and transaction management services. In the advisory segment, they offer strategic advice to owners and occupiers of real estate about industrial and retail space and project management services. In the real estate investments segment, they offer investment management services.
CBRE announced its Q1 FY23 results. They performed well in tough market conditions. I will do its technical and financial analysis in this report. They are undervalued and look great for the long term, but short-term headwinds remain. Hence I assign a hold rating on CBRE.
Financial Analysis
CBRE recently posted its Q1 FY23 results . The revenue for Q1 FY23 was $7.4 billion, a rise of 1% compared to Q1 FY22. I think outperformance in the global workplace solutions segment was the main reason behind the revenue increase. The revenue from the GWS segment in Q1 FY23 was $5.3 billion, a rise of 11% compared to Q1 FY22. I think the main reason behind the rise was revenue growth of 12% and 18% in the facilities and project management, which was driven by large project mandates. Even though the revenues in Q1 FY23 rose, the rise was just 1%. I believe revenue decline in the advisory services and real estate investments segments was the main reason behind the stagnant revenue growth in Q1 FY23. The revenues from advisory services and real estate investment segments declined by 17.5% and 21.1% in Q1 FY23 compared to Q1 FY22. I think underperformance in the property leasing and capital markets impacted advisory services segment revenues.
The net income for Q1 FY23 was $125 million, a decline of 68.4% compared to Q1 FY22. I believe the decline in the operating income in the advisory services and real estate investment segments was the main reason behind the decline. In addition, the costs and expenses also increased in Q1 FY23 compared to Q1 FY22. However, looking at the adverse market conditions that they had to face in Q1 FY23, I believe they have done quite well, and the stagnant revenue growth doesn’t bother me much because when the market conditions are back to normal, I think they might get back on the growth trajectory.
Technical Analysis
CBRE is trading at the level of $74.5. After falling more than 30% since January 2022, the stock has formed a solid base at $68. It has formed a triple bottom pattern which is considered a bullish pattern, and in addition, it is taking support of its 200 ema, which is at $72.5. If we look at the chart, the 200 ema has been working great. In the past three years, the price has breached 200 ema just three times, and whenever the price breaks the 200 ema, it never sustains below the ema, which shows its strength. The stock is near the strong support zone of $68 and is currently taking support from its 200 ema. So, in my opinion, one can start accumulating the stock at current levels due to multiple positive confirmations. Looking at the price action, I believe it can reach $90 in the coming times.
Should One Invest In CBRE?
The recent failure of regional banks has constrained lending, and the banks are now lending on a much more selective basis. In addition, the housing market is already under pressure due to elevated interest rates and high inflation. So I believe the bank failures and elevated interest rates might continue to affect the housing market in 2023, which could have an adverse impact on its revenue growth. Talking about the office market, several companies have reduced their office space to reduce costs. The recent layoffs of the employees in the IT and other sectors due to recessionary fears and reduce costs, I believe there might be more reduction in the office spaces in the future. So I think the office market might continue to slow down, affecting the company's revenues in the office market segment. These are the difficulties that I think might affect its business in 2023.
Now talking about the positives. Looking at the adverse real estate and general market conditions due to which almost every company competing in the sector is struggling, CBRE was able to post positive revenue growth, and it is outperforming its peers, which is a positive sign and it shows how strong the company is. I believe its diversified portfolio is one of the major reasons behind its success. Moreover, their cyclically resilient business grew by 10% in Q1 FY23 compared to Q1 FY22, showing its ability to perform in adverse economic conditions. In addition, if we look at the technical chart, the stock price is near the buying buy zone, and it is showing bullish signs.
I also like the valuation of the company. CBRE has a P/E ((FWD))ratio of 15.21x compared to the sector ratio of 31.37x and has an EV / EBIT ((TTM)) ratio of 21.33x compared to the sector ratio of 33.76x. Looking at its growth in unfavorable market conditions. I believe the valuation is justified, and they are undervalued, in my opinion.
Risk
Their relationship with the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, collectively known as the Government Sponsored Enterprises (GSEs), is an essential part of their loan origination and servicing business, which they conduct through some of their wholly-owned subsidiaries. They must comply with numerous eligibility standards as approved sellers/servicers for the GSEs and originate and service loans in line with the specific program requirements, including taking part in loss sharing and repurchase arrangements. They risk having their permission to sell and service GSE loans revoked or terminated if they fail to follow these rules.
Bottom Line
The technical chart of CBRE is looking good, and they were able to grow their revenues in tough market conditions, which is an optimistic sign. Their valuation looks good, and looking at their diversified portfolio, I believe they are a winner in the long term. But we cannot ignore the short-term headwinds. The housing market and the banking system are under pressure which might affect the company in the short term. Hence I assign a hold rating on CBRE.
For further details see:
CBRE Group: Looking Good For Long Term But Short-Term Headwinds Remain