CIBCThese are all US$ figures. GLTA
EQUITY RESEARCH
June 10, 2022 Earnings Update
COLLIERS INTERNATIONAL GROUP INC.
Investment Management: A Key Growth & Valuation Driver
Our Conclusion
In this report, we look at the potential for CIGI’s investment management
business to drive a higher share price. We believe that the current level does
not fully reflect the embedded value of the investment management platform,
which is a major part of CIGI’s goal to increase adjusted EBITDA derived
from less variable recurring revenue businesses from ~50% today to 65% by
2025. We view investment management as a key element to share price
appreciation, reflecting the platform’s revenue stability, acquisition and
organic growth potential and higher industry-specific valuation. We maintain
our Outperformer rating and $170 price target.
Key Points
Investment Management Business Is Underappreciated & Undervalued:
CIGI shares trade below the historical average EV/EBITDA multiple, which
includes the period when CIGI had a much smaller investment management
presence. Our analysis suggests the current ~9.7x multiple on NTM reflects
no valuation premium for investment management over the real estate
service businesses, out of sync with the ~20x average multiple for U.S.
private equity investment managers. The mid-point of our scenario analysis,
applying multiples of 12.5x on investment management and 11.0x on real
estate services, produces a share value of $132, implying ~23% upside.
Recurring Revenue Businesses Form CIGI’s Growth Engine: CIGI has
focused its growth efforts – including acquisitions – on recurring revenue
businesses, which help smooth out the inherent variability of the
transactional leasing and capital markets service lines. We estimate recurring
revenue businesses will contribute ~57% of adjusted EBITDA in 2023E, up
from ~50% in 2021. This largely reflects the contribution from higher-margin
investment management, including capital raising and the Antirion, Basalt
and Rockwood acquisitions. Further deals will be required to hit CIGI’s goal.
High-growth Real Estate Asset Classes Drive Acquisition Program:
Investment management is a key part of the acquisition growth strategy. CIGI
has grown this business rapidly since market entrance with the first
acquisition in 2016: from an initial $2B, the company has increased AUM to
$65B ($77B pro forma). Just over 50% of this AUM is in growing alternative
real estate classes, which feature uncorrelated returns, asset diversification
and lower volatility. Infrastructure makes up 18% of AUM; traditional real
estate classes make up the remaining 30%, though we note that many
investment programs have differentiated strategies.
Healthy Balance Sheet Supports Robust Acquisition Program: We
assume $50MM of further acquisitions per quarter from Q4/22 to Q4/23.
CIGI’s balance sheet is also well capable of supporting large deals, with over
$1B of pro forma liquidity and 1.5x peak leverage through 2023E; ample free
cash flow of ~$500MM for 2023E will keep leverage at conservative levels.