Colliers International Group: A Buy-Rated Name with Recession-Resistant Businesses

Colliers International Group is a Buy-rated name due to its recession-resistant businesses and potential spin-off of its asset management arm. The company's expansion in the engineering business is key to re-rating its stock.

Colliers International Group (NASDAQ:CIGI) (TSX:CIGI:CA) continues to be a Buy-rated name, with its recession-resistant businesses and potential spin-off of its asset management arm as key drivers. The company's expansion in the engineering business is crucial for re-rating its stock.

The engineering segment (ES), which accounted for 21% of CIGI's 1Q25 normalized EBITDA, is poised for significant growth. The company recently disclosed its fourth inorganic growth transaction in the sector within a 12-month period, acquiring Cambium Inc., a leading multi-service engineering consulting firm in Ontario [1].

Colliers International Group's management is optimistic about the engineering segment's future. The company believes that the engineering business could dwarf the rest of its real estate services business in the long run. Three growth levers support this optimism: cross-selling to the real estate services segment's existing customers, expanding into the Europe, the Middle East, and Africa (EMEA) region, and executing acquisitions [1].

The engineering segment's potential to increase its revenue base through cross-selling synergies with the real estate services segment is substantial. The real estate services segment is CIGI's top operating earnings contributor, and Colliers is the third most well-known commercial real estate (CRE) brand worldwide [1]. Additionally, the engineering business is currently concentrated in North America and Australia, with only 15% of its topline derived from the EMEA region. The company has the intention to raise the engineering segment's financial contributions from the European market [1].

Colliers International Group's track record of executing value-accretive deals suggests that its roll-up strategy in the engineering segment is viable. The company has been executing acquisitions at EBITDA ratios around 5-6x, and its shares are poised for a re-rating as listed engineering-related equities command higher multiples [1]. As the engineering segment grows, it has the potential to trade at superior valuations comparable to publicly-listed engineering enterprises.

However, there are downside risks to watch. The engineering segment's organic prospects could be negatively impacted if it fails to broaden its presence in European markets, cross-sell to the real estate services segment's customer base, or execute fresh acquisitions due to adverse developments in the deal-making environment or increased competition [1].

In conclusion, Colliers International Group's expansion in the engineering segment is key to re-rating its stock. The company's strategic growth initiatives, including cross-selling, geographic expansion, and acquisitions, position it to achieve significant growth in the engineering segment. However, investors should also consider the potential downside risks associated with these initiatives.

References:
[1] https://seekingalpha.com/article/4801095-colliers-engineering-business-expansion-key-to-rerating
[2] https://www.gurufocus.com/news/2971169/wolverine-asset-management-llc-reduces-stake-in-melar-acquisition-corp-i