Colliers International Group Inc.
(CIGI-N, CIGI-T) US$116.09 | C$148.76
Anticipating Strong Q1/22, but Investors Focused on Medium Term Event
Colliers will report Q1/22 results before market on May 3; conference call: 11:00 a.m. (1-877-402-8911).
Impact: NEUTRAL
We forecast Q1/22 revenue of $919.7mm, up 19% y/y, reflecting a 17% increase in transaction revenues, 17% increase in O&A, and a 46% increase in IM. We forecast EBITDA of $106.8mm (consensus: $105.1mm) at margins of 11.6%, down 28bps y/y, reflecting revenue mix and given the broad-based inflationary headwinds (granted, we understand pricing pass-throughs are strong).
Despite being a seasonally weak period, we believe Q1/22 is positioned for strong results, reflecting continued robust capital markets activity, recovery of pent- up leasing demand, and an ongoing strong capital raising environment for real- estate private equity (with Blackstone's acquisition of ACC a strong valuation mark for Harrison Street's student housing portfolio). Based on RCA/CBRE data, U.S. sales transaction volumes increased 56% y/y in Q1/22 and set a new Q1 high, while European volumes increased 31% y/y, marking the second strongest Q1 on record. On the leasing front, we have seen encouraging regional-level data and note that U.S. office occupancy increased to 42% in Q1/22 versus 20% in the previous year. Our current estimates assume 20% y/y growth in CIGI's Americas transaction revenue and 8% in EMEA. However, we believe our transaction estimates could prove conservative, given the industry data.
NCIB: In Q1/22, Colliers repurchased >600,000 shares at an average price of ~$128/share (>$77mm). This is the first time CIGI has repurchased shares, with management noting in Q4/21 results that it viewed CIGI as "...significantly undervalued when compared to others...". We view this as a positive signal, particularly when combined with the strong industry data, a pre-loaded M&A pipeline, and given CIGI's diversified business mix which provides multiple growth engines outside transaction services. However, we believe investors are acutely focused on the potential for weaker medium-term (i.e. 2023/2024) transaction results, given the current geopolitical risks, rising interest rates, and recession fears, which is pressuring CIGI's valuation, in our view.
TD Investment Conclusion
We are maintaining our BUY recommendation, but we have lowered our target price, reflecting a new lower multiple in light of the risk-off market sentiment for growth equities in a rising interest rate environment.