Our view: Following robust Q3 results, our confidence in the attractive multi-year setup for Colliers International Group (“CIGI”) is unchanged. We contend that concerns about the Q4 guide, labour constraints, and inflation, are misplaced and remain buyers at current levels. More importantly, we think CIGI has the corporate culture, platform, and track record, to deliver on its Enterprise '25 targets—while driving material growth in recurring EBITDA... and that if CIGI can achieve these ambitious targets, it will be very good news for shareholders. Reiterate high- conviction Outperform rating and street-high $185 price target.
Key points:
Implied Q4 guidance brackets our prior $167MM forecast. CIGI reported Q3 adjusted EBITDA of $124MM, up 34% YoY, and well-ahead of RBC/ Street at $93MM/$103MM. With full-year guidance for growth of 40–45%, this implies growth of 0–10% for Q4 (i.e., $154–172MM). Following YTD growth of 71%, this would appear to be quite the deceleration. We think some context is in order. In Q2/20 and Q3/20 transaction volumes declined 32%/21% globally (63/53% in the U.S.), before rebounding to within 5% of pre-pandemic levels in Q4/20 (-9% in the U.S.). With this backdrop, we think the guide is reasonable and consistent with CIGI's conservative nature.
Not losing sleep about inflation or labour. With a highly variable cost structure and a sharp focus on high value (i.e., high margin) professional services, we believe CIGI remains comparatively well-positioned for wage inflation across its ~15,000 person workforce. Similarly, while labour shortages have constrained growth, particularly within engineering, we're hardly disappointed by 32% YTD growth from the O&A segment.
Thinking through the 2025 evolution. Relative to TTM results, CIGI's Enterprise '25 plan envisions a 12% adjusted EBITDA CAGR, supported by: 1) 18–19% EBITDA growth in recurring services, including high single- digit organic revenue growth (or better); and, 2) low- to mid-single- digit EBITDA growth for brokerage, driven largely organically. This should increase recurring EBITDA to 65%+ by 2025, from 51% on a TTM basis.
At the end of the day, it all comes down to culture. In our view, CIGI's ethos is clearly visible in its people, who are all heavily incentivized to deliver on their own 5Y plans—now more so than ever. In our view, these individuals are entrepreneurial and well-supported by Colliers' global brand, technology, and systems. We believe this has underpinned CIGI's 17- year track-record of 22% annualized EBITDA growth in 2004–21.
Pondering a $215 blue sky scenario. Feedback from our Oct-25 note was principally that our target multiples (i.e., 14x EBITDA and 25x EPS) remain conservative and could have some upside. Assuming a 20x EBITDA multiple for CIGI's recurring services—in line with FirstService Corp's 3Y average— for a 16x overall multiple, this would imply a $215 target and 29x 2023E EPS multiple. With an upside PEG ratio of 2.2x, compared with the S&P 500's 2.6x, we see this as an achievable "blue sky" scenario. That said, we think it's too early to incorporate these metrics in our baseline valuation.