2 Canadian Stocks Worth Owning for the Long Haul

It’s been seven years since Colliers International Group (CIGI) and FirstService (FSV) were separated into two independent, publicly-traded companies. Both have a focus on real estate. Both are highly profitable. Both are worth owning for the long haul. 

Before getting into the merits of each business, it’s important to note that FirstService investors got one subordinate voting share for both Colliers and the new FirstService business. On June 1, 2015, CIGI closed at $38.26. 

Today, if you still held both stocks, you’d be sitting on an unrealized gain of 541%, not including dividends. The S&P 500 is up 94% over the same period. 

If you think you’re too late to buy, you’re not. Here’s why. 

FirstService Buys Colliers

Colliers International’s history dates back to 1898, when J.P. Nicolls founded Macaulay Nicholls in Vancouver, British Columbia. The company provided real estate property management in the fast-growing Canadian city. Fast forward to 1976. Colliers International was founded in Australia. In 1984, Colliers merged with Macaulay Nicolls Maitland to become Colliers Macaulay Nicholls and, ultimately, Colliers International.

FirstService got involved with Colliers in 2004, investing in the Canadian business and taking control in 2009. A year later, FirstService and Colliers merged into one large company, with FirstService focusing on residential real estate services and Colliers focusing on commercial real estate advisory services. 

By 2015, Colliers and FirstService were ready to separate. 

This wouldn’t have happened without CEO Jay Hennick starting at age 15, providing lifeguards for apartment buildings and condos. From FirstService’s official founding in 1989, Hennick’s been responsible for building two multi-billion dollar companies. 

While Hennick serves as the Chairman and CEO of Colliers, he is also one of the largest shareholders in FirstService, with 6.9% of its stock and 14.0% of Colliers. Based on current prices, his shareholders are worth approximately $1.1 billion. 

Colliers generates revenue from four operating segments: Outsourcing and Advisory (41% of Q1 2022 revenue), Capital Markets (26%), Leasing (24%), and the rapidly growing Investment Management business (9%). 

Its investment management business grew revenue by 96% year-over-year in the first quarter. Overall, Colliers grew revenues 29% YOY in the first quarter while growing adjusted EPS by 38%. 

Thanks to acquisitions, the company’s investment management business will account for 23% of its adjusted EBITDA by 2022. 

It’s got an asset-light business model that will continue to deliver for shareholders. Down 20% YTD, its stock is ready to come alive. 

FirstService’s Residential Focus

When it comes to FirstService, its bread and butter is the residential market. 

Its business is divided into two segments: FirstService Residential and FirstService Brands. The former manages residential communities while the latter provides residential property services such as home services (CertaPro Painters, California Closets), restoration (First Onsite, Paul Davis), and fire protection (Century Fire Protection).

In 2021, restoration generated 56% of its $1.7 billion in revenue. Including franchisees, FirstService Brands generated $3.6 billion in system-wide sales in 2021. It is either first or second in U.S. market share in the areas it participates.

Like CIGI, it grows through a combination of organic sales and acquisitions. Since 2017, it’s grown sales and adjusted EBITDA by 17% and 20% annually.  

As for FirstService Residential, it has management contracts to provide a broad range of services at real estate properties such as condos, co-ops, master-planned communities, and even single-family homes. It generated over 72% of its $1.6 billion in 2021 revenue from high-rise condos and master-planned single-family homeowner associations. Approximately 87% of its revenue is in the U.S., with the remainder in Canada.  

The best part about the two segments is that their revenue and earnings are almost evenly split between them, so both are contributing to the company’s overall success.

The Reason I Like CIGI Over FSV

In 2022, Colliers is expected to generate $430 million in free cash flow from $4.65 billion in revenue. The analyst estimate for FirstService’s free cash flow in 2022 is $159 million from $3.66 billion. In 2023, free cash flow’s projected to grow 22% to $195 million from $3.92 billion in sales. 

With both companies, slow and steady wins the race. 

The six analysts covering FSV stock rate it a Hold with a median target price of $147.50, 17% higher than where it’s currently trading. As for CIGI, the seven analysts covering its stock give it an Outperform rating and a median target price of $165, 40% higher than its current share price. 

If I could only buy one of the two stocks, I’d have to go with Colliers, primarily because it’s already made more than $400 million in acquisitions in 2022 related to its investment management business, with more to follow. 

So, even though the unit currently only accounts for 9% of revenue, Jay Hennick and the rest of his strong management team are committed to growing this part of its commercial real estate business. 

With more robust free cash flow generation than its former stablemate, I like CIGI over FSV. However, if you can afford to buy both, you won’t go wrong over the long haul.