Colliers International Group Inc.
(CIGI-N, CIGI-T) US$124.86 | C$159.54
Q2 Preview: Expecting Strong Quarter but Outlook the Focus Event
Colliers reports Q2/22 results pre-market August 3; CC: 11:00 a.m. (1-877-402-8911). We forecast Q2/22 revenue of $1,049.1mm, up 10.9% y/y (+8.7% transaction revenues, +9.7% O&A, and +42.0% IM, bolstered by the Antirion and Basalt acquisitions). We forecast adj. EBITDA of $145.1mm (cons: $143.3mm) at margins of 13.8%.
Impact: NEUTRAL
Overall, we anticipate that Q2/22 results will be solid with management previously indicating that it had good visibility into its transaction pipeline for Q2 and given the significant strides being made to cross-sell its O&A services. Additionally, we expect positive updates around CIGI's IM fundraising. We acknowledge that there have been several negative headlines around the broader private equity fundraising environment but would highlight that capital continues to chase differentiated strategies such as CIGI's, which focus on long-duration, hard assets, with resilient demographic drivers (~70% of AUM in alternatives/infrastructure and >80% perpetual and long-dated capital). Our sense is that CIGI will be successful in achieving its ambitions for closing a record number of new funds this year.
Capital markets: We see potential for strong Q2/22 sales brokerage commissions reflecting RCA data which shows U.S. sales transaction volumes increasing 17% y/ y in Q2/22 to $190.3bn. However, in Europe/Australia RCA reported a normalization of Q2/22 sales transactions, with volumes down 19%/33% y/y, respectively, but still at levels broadly consistent with pre-pandemic averages. Recall, Americas/EMEA capital markets represent ~20%/~5% of consolidated revenue, respectively. In our view, the current interest rate environment is likely to temper CRE transactions versus the blockbuster 2021. However, we do not envision a 2009 or 2020-like environment as there continues to be record levels of dry-powder allocated to the CRE sector, healthy functioning of credit markets, and given structural end-market shifts which will require transaction velocity.
We expect CIGI will provide updated full-year guidance, incorporating the early close of Basalt and the Rockwood, Paragon, and Versus acquisitions.
TD Investment Conclusion
We acknowledge the headwind posed by rising interest rates for CRE and recession fears, but believe that the stock offers a compelling risk/reward trade-off, particularly for investors with a long-term focus. Also, the mix of recurring revenues continues to increase, with IM now >30% of pro-forma EBITDA.