Elevator Pitch
I rate Colliers International Group Inc. (NASDAQ:CIGI) (TSX:CIGI:CA) shares as a Buy.
Earlier, I evaluated CIGI’s Q4 2023 financial performance in my February 12, 2024 article. The focus of this write-up is Colliers International’s latest financial disclosures for the first quarter of the current year.
There were no substantial surprises relating to CIGI’s Q1 results. Also, the company has reiterated its existing 2024 management guidance, which points to an improvement in its performance this year as compared to last year. As such, I maintain my bullish view of CIGI.
First Quarter Revenue And EBITDA Were Largely In Line With Consensus Forecasts
CIGI released the company’s Q1 2024 financial results announcement on May 2 before the market opened. Colliers International’s shares were flat (-0.7% decline) at the end of the May 2, 2024 trading day, implying that its first quarter results didn’t throw up any major surprises.
Top line for Colliers International rose by +3.7% YoY to $1,002.0 million in the first quarter of 2024. CIGI’s latest quarterly revenue was +1.1% higher than the sell side’s consensus top line projection of $991.4 million as per S&P Capital IQ data. CIGI’s actual Q1 2024 normalized EBITDA was $108.7 million, which translated into a +3.9% YoY growth rate. The company’s first quarter EBITDA was -1.4% short of the market’s consensus $110.3 million (source: S&P Capital IQ) EBITDA estimate.
It will be fair to claim that CIGI’s key financial metrics for the first quarter were largely aligned (marginal beats and misses with revenue and EBITDA) with what the analysts had previously anticipated.
At its Q1 2024 earnings call (transcript sourced from S&P Capital IQ) on May 2, Colliers International highlighted that the “strength in our diversified recurring services” more than offset “a decline in capital markets activity.” This statement tells the story of CIGI’s performance for the recent quarter.
In Q1 2024, the company’s recurring revenue business, the Outsourcing & Advisory segment, witnessed a +9% YoY increase in sales adjusted for foreign exchange effects. In contrast, Colliers International’s Capital Markets business segment suffered from an -8% YoY contraction in constant-currency revenue for the latest quarter.
I touch on Colliers International’s prospects in the next section.
Unchanged Full-Year Guidance Signals Confidence In Future Performance
After reporting in-line Q1 2024 results, CIGI stuck to its existing fiscal 2024 financial guidance. I think that this indicates that the management is confident in the company’s prospects.
In specific terms, Colliers International sees the company’s revenue and normalized EBITDA increasing by +5%-10% and +5%-15%, respectively, for the current year. In comparison, CIGI’s top line and EBITDA contracted by -2.8% and -5.6%, respectively in the previous year.
The company noted at its recent quarterly earnings briefing that the FY 2024 guidance assumes the execution of “backlogs of work in progress” for its Outsourcing & Advisory segment this year, and a “modest rebound” for the Capital Markets segment in 2H 2024.
In my opinion, CIGI has adopted reasonably conservative assumptions regarding its expected FY 2024 business performance. Colliers International stressed at the company’s Q1 2024 results briefing that the Outsourcing & Advisory segment has a “high degree of visibility” due to the recurring revenue nature of this business. On the other hand, the company has only projected that its Capital Markets segment achieves a “modest (my emphasis) rebound” in the latter half of the year.
Assuming that Colliers International delivers on its current full-year guidance, the company’s 2024 results will represent a meaningful improvement over the prior year. In the subsequent section, I highlight the potential upside pertaining to CIGI’s 2024 financial performance.
Potential Upside From Inorganic Growth And Favorable Change In Rate Environment
In my view, CIGI has the potential to achieve the higher end of its current financial guidance for full-year FY 2024, or even exceed its own expectations this year.
One key factor to note is that Colliers International has both the financial capacity and intention to leverage on inorganic growth opportunities, which aren’t reflected in its guidance that only assumes organic growth.
In its investor presentation slides, CIGI revealed that it has “more than $1 billion of available liquidity” at the end of the first quarter this year. The company also indicated at its Q1 earnings call that it is “actively involved in many transactions right now” and drew attention to its “track record of completing multiple transactions over many years.”
The other key factor to watch is that the company’s Capital Markets segment might perform above expectations, assuming that there is a positive change in the interest rate environment.
A May 1, 2024 Seeking Alpha News article cited the Fed’s comments that it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.” In other words, the market is now likely to be pricing in a delay in rate cuts and a lackluster set of results for CIGI’s Capital Markets segment. This sets the stage for Colliers International’s Capital Markets business to report better-than-expected performance for 2024 in the event that a more favorable interest rate scenario (i.e. earlier-than-expected rate cuts) materializes.
Variant View
Colliers International might fail to exceed its FY 2024 financial targets if the Fed pushes back the timeline for rate cuts again or even hikes interest rates. That kind of unfavorable interest rate environment scenario will be negative for CIGI’s Capital Markets business segment. Also, elevated interest rates in general tend to be negative for M&A activity, and that translates into downside risks for Colliers International’s FY 2024 inorganic growth prospects.
Final Thoughts
Colliers International should have no issues meeting its current financial guidance. The Outsourcing & Advisory segment boasts recurring revenue streams, and the company hasn’t factored in bullish assumptions for its Capital Markets segment’s performance.
Colliers International is now valued by the market at 17.2 times consensus forward normalized P/E multiple, which is pretty close to the stock’s historical five-year average P/E of 17.3 times (source: S&P Capital IQ). Using historical valuations as a gauge, CIGI’s valuations are undemanding.