1 TSX Stock I’d Be Tempted to Sell on the Market Rally

Here’s why this TSX stock might underperform equity markets in 2020.

| More on:
Clock pointing towards a 'sell' signal

Image source: Getty Images.

The world will probably limp back to normalcy in May 2020. Some companies have had decent first-quarter numbers. The second quarter, for most companies, is going to be a dud, as they continue to grapple with the lockdown and business closures. A few companies may be able to claw back their way to growth in the third and fourth quarters of the year. For others, it’s going to be an uphill climb.

Colliers International Group (TSX:CIGI)(NASDAQ:CIGI) falls in the latter category.

Colliers is in the real estate and investment business

Colliers is a leading real estate professional services and investment management company with operations in 68 countries.

For more than 25 years, the company has delivered compound annual investment returns of almost 20% for shareholders. In 2019, corporate revenues were more than US$3 billion ($3.5 billion including affiliates), with US$33 billion of assets under management in the company’s investment management segment.

The company just reported its numbers for the first quarter of 2020, and they are quite impressive. For the quarter, revenues were US$631 million, up 1% versus the same period in 2019. Adjusted earnings per share came in at US$0.54, up 6% versus the prior year. It beat analyst estimates of US$0.48 per share.

The first-quarter consolidated EBITDA was US$54 million compared to US$44 million. This indicates an EBITDA margin of 8.6% versus 6.9% in the prior-year quarter.

While the first two months of the quarter were good, the effects of the pandemic have begun to show in March. Q1 revenues in the Americas totalled US$370 million, up 4%. Europe, Middle East, and Africa Q1 revenues were US$117 million, flat relative to the prior comparative period.

The pandemic adversely impacted brokerage revenue late in the quarter. EBITDA for the region was a loss of US$4 million compared to a loss of US$3 million last year.

Asia Pacific region revenues were US$97 million, down 9% year over year. A sharp fall in brokerage activity in China and other Asian countries due to the ongoing pandemic hurt sales in this region. Lower revenue and service mix meant EBITDA fell to $5 million from $11 million in this region.

What’s next for investors?

Jay Hennick, the company’s CEO has said, “Given the uncertainty, we expect the balance of the year to be challenging, particularly for our brokerage operations.”

About 45% of Colliers’ revenues and more than 50% of EBITDA comes from outsourcing, advisory, and investment management — services that are typically essential, recurring, and contractual, giving the company a much more stable business than ever. The rest of the company’s revenues and EBITDA come from the highly variable brokerage operations, which the company expects will decline sharply. That’s 55% of the business.

Brokerage revenues have a highly variable cost structure. Sales from this business are forecast to decline sharply in the second quarter. It might gradually improve sequentially in the third and fourth quarters. That said, there is a lot of unpredictability in the real estate sector.

Colliers’s working assumption for the full year 2020 is a 15-25% decline in consolidated revenues. It also forecasts a 25-35% decline in consolidated adjusted EBITDA relative to 2019. This excludes the impact of pending acquisitions.

Hennick says, “Without question, we will continue to be tested in the coming months in ways we can’t anticipate.” Investors need to stay away from Colliers until the second-quarter results are out and there is relative clarity for the second half of the year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends COLLIERS INTERNATIONAL GROUP INC. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

More on Coronavirus

rail train
Coronavirus

Bull or Bear: Why Analysts Changed Their Tune on Aecon Stock

Analysts had been champing at the bit for the construction company, but the tides have turned.

Read more »

Biotech stocks
Coronavirus

Is Bellus Health Stock Still a Buy After 30% Earnings Jump?

The biotech continues to make progress on obtaining FDA approval for its chronic-cough therapy.

Read more »

grow dividends
Coronavirus

Goodfood Stock Likely to Double in 2022!

Goodfood (TSX:FOOD) stock has had a huge rise and fall in the last few years. But at $1.85 a share,…

Read more »

grow dividends
Coronavirus

Canfor Stock Pops 5% as Sales Climb 15% YOY

Canfor (TSX:CFP) stock remained positive about its future in the global lumber market after profits climb 15% year over year.

Read more »

edit Safety First illustration
Coronavirus

2 Crash-Proof TSX Stocks I’d Buy With $5,000

These two TSX stocks have proven they can handle this economic downturn and likely will continue to be safe far…

Read more »

TSX Today
Coronavirus

What to Watch on the TSX on Tuesday, April 26

Earnings continue to come out on the TSX today, including Air Canada (TSX:AC). Meanwhile, investors may want to continue watching…

Read more »

think thought consider
Coronavirus

Should Investors Buy Goodfood Stock Ahead of Earnings?

Goodfood (TSX:FOOD) stock dropped on Wednesday ahead of the company's earnings release. And it's unclear whether there will be anything…

Read more »

little girl in pilot costume playing and dreaming of flying over the sky
Coronavirus

Cargojet Stock Soars Higher, Is it Still a Buy?

Cargojet stock (TSX:CJT) jumped after its deal with DHL, but at today's prices is the airline company still a buy…

Read more »