Our view: Yesterday, Colliers International Group (“CIGI”) announced its Enterprise ’25 plan, which aims to double the size of the business over the next 4–5 years. CIGI also formalized its goal of increasing recurring EBITDA to 65%+ from 54%. If you believe that CIGI can achieve its ambitious growth targets, we think the best way to value the business is not a one- year forward multiple, but rather to: 1) discount 2025E EBITDA back to 2023E; and 2) apply a sum-of-the parts multiple to reflect CIGI’s evolution into a highly diversified professional services company. Reiterating high- conviction Outperform rating and raising price target +$25 to $185.
Key points:
Enterprise ’25 plan aims to double profitability over the next 4–5 years. CIGI's 2025 targets (link) include revenue of $5.6B, adjusted EBITDA of $830MM, and adjusted EPS of $8.40—with adjusted EBITDA broadly in line with our five-year DCF. Relative to 2020A, this implies growth of 2.0x, 2.3x, and 2.0x or a CAGR of 15%, 18%, and 15%. Relative to our 2021E, this implies growth of 1.5x, 1.7x, and 1.5x or a CAGR of 12%, 14%, and 11%.
Growth in recurring EBITDA set to underpin continued re-rating. After doubling adjusted EBITDA between 2015 and 2020, we think most investors expected a similarly ambitious plan for 2020–25. What flies under the radar, in our view, is accelerating growth in recurring services, which have increased to 54% of TTM EBITDA as at Q2/21, from 31% in 2017. Looking ahead, we believe this continued evolution will underpin an upward re- rating—particularly as recurring EBITDA reaches 65–70%.
We apply a 14x sum-of-the-parts EBITDA multiple in our valuation, consisting of: 1) a 16–18x multiple for recurring services (65% of EBITDA); and 2) an 8–10x multiple for the more cyclical capital markets and lease brokerage segments (35% of EBITDA). Qualitatively, we believe these metrics are largely in line with what CIGI’s shares historically have implied (see Exhibit 1) yet above the sector’s 9.4x long-term average, which reflects limited revenue from recurring services (e.g., 15–35% in 2005–15).
2021–23 estimates unchanged; tweaking out-years in our DCF. With record Q3/21 and year-to-date U.S. transaction volumes, we feel comfortable, if not optimistic, about the setup for H2/21. Looking further afield, we make no changes to our 2022–23 estimates and only minor tweaks to our 2024–26 forecast. Our target EBITDA reflects 2025E of $830MM, discounted at an 8% rate to $712MM in 2023E.
Reiterating Outperform; price target +$25 to $185. While shares have rallied ~62% YTD, we remain constructive on the multi-year outlook for the business. The stock trades at 13.5x 2022E EBITDA vs. the normalized ~11.2x average since the 2015 spin-out—warranted, in our view, in light of CIGI’s continued evolution and strong track record (i.e., 21% EBITDA CAGR in 2004–20). Our price target increases by $25 to $185, driven by the change in our valuation methodology. This implies a target P/E multiple of 25x vs. the current 23x on 2022E and normalized average of 18x since the spin-out