Colliers International Group (TSX: CIGI) is a Canadian real estate services company. Primarily serving as a commercial real estate broker, it has a large presence across Canadian and international markets. Colliers’s business model is fairly unique among Canadian real estate companies. Neither a real estate investment trust (REIT) nor a property developer, it rather serves as something like a real estate agent for buyers and sellers of sizable commercial properties. It also has secondary business activities in real estate investment management, involving managing assets for high-net-worth investors.
Last month, CIGI stock rallied 19%. Despite that, almost nobody is talking about the stock. Colliers’s unique business mix and market position make it an intriguing company, but is its stock a buy? In the ensuing paragraphs, I will attempt to answer that question.
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What Colliers does
As mentioned previously, Colliers International is involved in real estate brokerage services as well as real estate investment management. Sub-categories within these broader categories include the following:
- Property sales: Brokering commercial transactions, much like how a real estate agent helps you sell your home.
- Insolvency and restructuring: Helping struggling real estate investors manage their insolvency.
- Property management: Handling tasks like repairs and rent collection for landlords.
- Appraisal: Valuing properties.
- Real estate investment management: Managing money that investors have allocated to Canadian real estate.
- Engineering: Colliers also runs a real estate consultancy that advises on property and infrastructure projects as well as utility projects.
This is a pretty diverse book of business. While many Canadian companies, public and private, do some of these activities, Colliers’s handling of all of them creates significant synergies. So, it could be said that Colliers has something of an “ecosystem” effect, which may help with retaining client business.
Recent earnings
Colliers’s most recent earnings were mixed. The company beat on adjusted earnings but missed on reported earnings. Some highlight metrics included the following:
- $1.35 billion in revenue, up 18%.
- $180 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), up 16%.
- $1.72 in adjusted earnings per share (EPS), up 26%.
On a five-year compounded basis, here are the growth rates in these categories:
- Revenue: 12.7%.
- 16% in EBITDA.
- 4.2% in EPS.
To sum up, Colliers has done a lot of growing, both in the trailing 12-month period and over the last five years. It’s a little disappointing that the five-year CAGR growth in earnings lagged dramatically behind the growth rate in revenue, although the free cash flow (FCF) growth rate in the same period was 15% CAGR.
Valuation
Last but not least, we can look at some valuation multiples for Colliers. They include the following:
- 25 times earnings.
- 1.55 times sales.
- 5.8 times book value.
- 28 times cash flow.
This part of the analysis is not quite as flattering for Colliers compared to the others. 28 times cash flow is quite pricey for a real estate company. Investors will want to be sure that CIGI can keep up the growth before they invest in it, as it is not worth the asking price in a no-growth scenario.
Foolish takeaway
Taking into account both its performance and valuation multiples, I’d call Colliers stock a hold. It’s a pretty good company but a little pricey at the moment.
