On today’s Breakouts report, there are five stocks on the positive breakouts list (stocks with positive price momentum), and 23 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that appeared on the negative breakouts list at the beginning of this month - Colliers International Group Inc. (CIGI-T).
On May 3, the company reported solid first-quarter earnings results and increased its 2022 outlook. Yet, high inflation, rising interest rates and concerns about a potential recession continue to weigh on stock markets, including Colliers, which is down 23 per cent year-to-date.
There has been opportunistic buying on this price weakness with the company repurchasing nearly 1 million shares in March and April. As well, the chief executive officer recently invested over $17-million in shares of Colliers.
However, with bearish investor sentiment and buyers remaining on the sidelines, the share price may retest its 2022 low of $136.58 (closed at on May 2) and resurface on the negative breakouts list, offering long-term investors a buying opportunity.
A brief outline on Colliers is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Toronto-based Colliers International Group is a global real estate services and investment management company with operations in 62 countries. The company provides services such as real estate advisory services, property management and appraisals, and investment management.
In terms of its 2021 adjusted EBITDA breakdown by segment: 50 per cent came from leasing and capital markets, 32 per cent from outsourcing and advisory, and 18 per cent from investment management.
There is seasonality in the company’s operations with the highest earnings reported in the fourth quarter (peak earnings are realized in December).
The company is dual-listed, trading on the Toronto Stock Exchange and Nasdaq under the same ticker, CIGI.
Investment thesis
- Strong leadership.
- Recurring revenue business model. Over 50 per cent of the company’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is recurring business such as property management, mortgage servicing, engineering & design services, and investment management.
- Steady organic growth. Between 2016 and 2021, the average annual internal growth rate was 7 per cent.
- Acquisition growth. On the first-quarter earnings call, management noted that the company has announced or completed over $400-million in acquisitions so far this year. CEO Jay Hennick said, “2022 should be a record year of capital allocation for Colliers.”
- Healthy balance sheet. Net debt-to-pro forma adjusted EBITDA stood at 0.9 times at the end of the first quarter, which is below management’s targeted range of between 1 and 2 times.
- Rising profitability. The adjusted EBITDA margin has expanded from 10 per cent in 2017 to 13.3 per cent in 2021. For 2022, management is guiding to margin expansion of between 0.4 per cent and 0.8 per cent.
- Reasonable valuation relative to historical levels.
- Returning capital to shareholders. In March and April, the company repurchased nearly 1 million shares.
- Significant insider ownership, aligning insiders’ interests with its shareholders.
- Potential key risks to consider: 1) further multiple compression in this rising interest rate environment; 2) economic recession or stagflation; 3) lack of buyers in the volatile equity markets – a buyers strike on stocks.
Quarterly earnings
Before the market opened on May 3, the company reported better-than-expected first-quarter financial results. Revenue came in at US$1-billion, up 29 per cent year-over-year and above the consensus estimate of US$891-million. Adjusted EBITDA was US$121.5-million, up 32 per cent year-over-year and handily surpassing the Street’s forecast of US$106-million. Adjusted earnings per share came in at US$1.44, up 38 per cent year-over-year, topping the Street’s expectation of US$1.23. That day, the share price rallied over 2 per cent on high volume.
Management increased its 2022 guidance, now forecasting low double-digit revenue growth, up from its previous guidance of high single-digit revenue growth. Mid to high-single digit organic growth is expected, up from management’s prior expectation of mid-single-digit internal growth. Adjusted earnings per share is forecast to rise in the high-teens, up from its prior guidance of growth in the mid-teens.
On the earnings call, chief financial officer Christian Mayer stated, “We increased our guidance for the year, in part on the strong result in Q1 [first-quarter]. And also, our good visibility into Q2 [second-quarter] transaction activity. We also have very good visibility on the recurring side of our business, which is half the revenue, and that gives us confidence in our outlook.”
Dividend policy
The company pays its shareholders a semi-annual dividend of 15 US cents per share, or 30 US cents per share yearly. The annualized dividend yield is low at 0.3 per cent.
In Dec., management announced a dividend hike, raising its semi-annual dividend to its current level of 15 cents per share from 5 cents per share, marking the first dividend increase since 2016.
Analysts’ recommendations
This mid-cap stock with a market capitalization of $6.3-billion is covered by nine analysts, of which eight analysts have buy recommendations and one analyst (Chandni Luthra from Goldman Sachs) has a ‘neutral’ recommendation.
The company is covered by analysts from Canadian as well as U.S. firms. The firms providing research coverage on the company are: ARC Independent Research, BMO Nesbitt Burns, CIBC World Markets, Goldman Sachs, National Bank Financial, Raymond James, Scotiabank, TD Securities and William Blair & Co.
Revised recommendations
Earlier this month, seven analysts revised their expectations.
- ARC’s Will Chien upgraded the stock to a “buy” from a “hold” but reduced his target price to $165 from $191.
- BMO’s Stephen MacLeod cut his target price to US$165 from US$184.
- CIBC’s Scott Fromson increased his target price to US$170 from US$165.
- Goldman’s Chandni Luthra reduced her target price by US$15 to US$130.
- National Bank’s Maxim Sytchev trimmed his target price to US$164 from US$176.
- Raymond James’ Frederic Bastien lowered his target price to US$180 from US$195.
- Scotiabank’s George Doumet tweaked his target price to US $168 from US$166.
Financial forecasts
The Street is forecasting EBITDA of US$632-million in 2022, up from US$544-million reported in 2021, and rising 10 per cent to US$698-million in 2023. The consensus earnings per share estimates are US$7.33 in 2022, increasing 9 per cent to US$8.02 in 2023.
Analysts have increased their earnings forecasts in recent months. For instance, four months ago, the consensus EBITDA estimates were US$577-million in 2022 and $631-million in 2023, and the consensus earnings per share estimates were US$6.18 for 2022 and US$6.76 for 2023.
By 2025, management’s objectives are to realize revenues of US$5.6-billion, achieve adjusted EBITDA of US$830-million, and report adjusted earnings per share of US$8.40. Revenue growth is anticipated to result from a combination of acquisition and organic growth. Management targets over 65 per cent of adjusted EBITDA will come from recurring revenue.
Valuation
According to Refinitiv, the stock is trading at an enterprise value-to-EBITDA multiple of 8.9 times the 2023 consensus estimate.
The average one-year target price is Cdn $199.95, according to Bloomberg, suggesting the share price may appreciate nearly 39 per cent over the next 12 months.
Insider transaction activity
On May 6, chairman and chief executive officer Jay Hennick invested over $17-million in shares of Colliers. He purchased 123,000 shares at a cost per share of $143.2347 for an account in which he has indirect ownership (Henset Capital Inc.), increasing this particular account’s position to 1,555,511 shares.
Chart watch
The stock has been a laggard.
Year-to-date, the share price has declined 23 per cent, underperforming the S&P/TSX Composite Index and the S&P/TSX Real Estate Index, which are down 5 per cent and down 16 per cent, respectively. However, in recent weeks, the share price has been trying to stabilize. Month-to-date, the share price up 2 per cent, making Colliers the second best performing stock in the S&P/TSX Real Estate Index (behind H&R REIT).
In terms of key resistance and support levels, the share price faces an initial ceiling of resistance around $155, near its 50-day moving average at $154.38. Looking at the downside, there is technical support between $135 and $136. Failing that, there is support around $120.
ESG Risk Rating
Rating provider Sustainalytics has given Colliers an ESG risk score of 10 or a ‘low risk’ rating (defined as a score between 10 and 20).
This report is not an investment recommendation.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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Jennifer Dowty