Colliers International Group Inc T.CIGI

RBC

[retiredcf]

Their upside scenario target is US$150.00. GLTA

September 21, 2023

Colliers International Group Inc. 
Investor meetings takeaways

Outperform

NASDAQ: CIGI; USD 102.88; TSX: CIGI

Price Target USD 130.00

Event: We hosted investor meetings with CFO Christian Mayer and a lunch discussion with Jay Hennick, Global Chairman and CEO of Colliers, in Toronto. Below are our key takeaways.

Key points:

Business Model and Strategy: Colliers can be thought of as a “private equity” firm with its partnership model being a key success factor. The “resilient” part of the business (O&A and IM), which accounts for ~2/3 (largely in line with long-term target), continues to perform, and this higher mix is a differentiator among global brokerage peers. Moreover, there is a meaningful amount of operating leverage coming from brokerage when transaction volume eventually returns (given that Colliers also added net 100 revenue producers in CM in US this year) and from IM with additional growth in AUM. Management entertained a question on the idea of possibly spinning off parts of the business, noting that anything will be considered to drive shareholder value if the stock price does not reflect the underlying value of its various businesses.

2023 Guidance: Management remains comfortable with its prior guidance, although it will look to tighten the range next quarter (we suspect closer to the low end). For H2, it expects continued ~$30M cost savings in Q3 and Q4, closings of additional funds in Q4 (including “catch-up” fees), and continued growth in O&A. That said, cost savings could revert somewhat next year but presumably would be offset by higher revenues in CM.

M&A and Balance Sheet

• Colliers is looking to be opportunistic, especially in the brokerage business. It also has a healthy pipeline of potential acquisitions in engineering & project management, a segment that it is looking to grow materially over the long term.

• Deal pricing trends have not come in.

• It is not looking to add a major platform, but if there were new platforms to be added, it would offer high-value professional services complementary to existing businesses.

• Net debt to EBITDA stood at 2.4x in Q2 and is expected to be under 2x by y/e. It seeks to operate between 1x and 2x.

  Capital Markets and Leasing

• Impediment to transaction volume has a lot to do with credit availability combined with banks globally being more lenient with borrowers (i.e., “kicking the can” down the road on distressed asset).

• Although we are unlikely to see material improvement in the fall, there is a sense that the bottom is near and that there is pent-up activity. There are green-shoots, for instance APAC, which is performing relatively better.
  
  • On leasing activity, Colliers has more suburban than CBD office exposure, which may explain relatively better performance than brokerage peers. Counter-intuitively, there is some upward pressure in leasing rate given market conditions.

  Investment Management

  • Fundraising remains challenging, but management still expects to raise ~$5B by year-end (could go into early 2024) with eight funds on the market, including Basalt Fund IV and Harrison Fund IX. On the latter two funds, there should be “catch up” fees from the first closings, which were in late 2022.

  • Colliers is seeing some redemption of its open-ended funds, but it is not material.

  • It is also looking to add credit products (currently ~4% of its AUM).

    Outsourcing & Advisory

    • Engineering / Project Management remains strong (high-single-digit growth); property management steady (mid-single-digit growth and there is higher client retention from lower transaction activity); valuation is impacted somewhat by lower transaction volume.