FirstService Corporation (FSV, $151.32): “Acquisitions Galore”
By: Ayden
Domico, AIM Student at Marquette University
Summary
FirstService
Corp. (NASDAQ: FSV) is a Canadian real estate firm that provides
property management services in the United States and Canada, primary in the
residential space. Offerings include security services, engineering and
maintenance, proprietary banking and insurance products, and management
solutions. The company operates through both company-owned and franchised
subsidiaries, namely California Closets, Century Fire Protection, and Paul
Davis Restorations among many others.
- Over
the past five years, FirstService’s revenue has grown at a CAGR of over
17% driven by increased demand in the housing market and inorganic growth
through acquisitions.
- FirstService
shares were trading at $67.33 per share on March 20th, 2020,
and at $202.08 on October 22nd, 2021, representing growth of
over 200% in just under a year and a half.
- FirstService
and its subsidiary brands have made a number of acquisitions in 2021 and
during the first quarter of 2022 to further expand their reach within
North America.
- FirstService
has increased dividends by exactly 10% during the first quarter of each
fiscal year since beginning distributions to stockholders in the second
quarter of 2015, and the company has announced plans to increase payments
by 11% in 2022 for the first time.
Key
points: FirstService Corp. has consistently grown since 2015,
positioning themselves as one of the premier property management and
restoration conglomerates in North America. Through many smaller acquisitions in
various concentrated metropolitan areas over the years, management has pursued
a strategy of aggressive yet consistent inorganic growth by building up their
subsidiary brands through franchising before purchasing them. In terms of debt,
FirstService typically uses cash in acquiring other companies, but the firm has
~$415mm due in variable rate term loans in mid-2024 and $120mm owed in fixed
rate bonds by the beginning of 2023, so they will need to generate extra
liquidity over the next year in order to meet those deadlines. Following the
end of the third quarter of 2021, FirstService had ~$141mm in Cash & Cash Equivalents
as well as over $600mm in Liquidity Available according to their most recent financial
statements. In five years, following
those two major repayments, FirstService’s management plans to only have about
$30mm in debt obligations left on the balance sheet.
Over the past year, FirstService
has made a number of acquisitions to continue to grow, but a majority of the
firms acquired have already been operating under the company’s operating
subsidiary, First Onsite Restoration. Acquisitions include A-1 Flood Tech out
of Virginia, Bales Restoration in the Seattle area, Kauai Restoration &
Cleaning in Hawaii, Emergency Fire & Water Restoration based out of
Milwaukee, and Chesapeake Sprinkler Company from Maryland. By acquiring
smaller, more local companies all around North America, FirstService is slowly
but surely buying their way into a majority of the major metropolitan markets
without having to start from scratch in each new area. These deals not only
strengthen FirstService’s brand, but also help to expand the company’s
footprint across the United States, allowing FirstService to service new geographical
areas on a regular basis.
Since 2015, when dividends were
first initiated by FirstService, the company has increased its distributions to
shareholders by an astounding 10% each year as the brand has grown
exponentially. FirstService paid a dividend of $0.1825 per share in each
quarter of 2021, and for the first time in 2022, the company announced that it
would pay an 11% increase in dividends. This marks the first time that FSV has
increased distributions at an amount greater than 10%, and it is a positive
indicator for the financial health of the company in both the short- and
long-term future.
What
has the stock done lately?
After nearly peaking in price at
the very end of December 2021 at $196.47, FirstService has fallen nearly 30%
despite no material bad news or otherwise negatively implicating information
being released up to this point. With no fundamental explanation for the drop
in price, FSV shares are now implied to be trading with at least a 30%
discount, presenting a great opportunity for investors also looking for
consistently growing dividends.
Past
Year Performance: With shares seeing an extended drop in price since
New Year’s, FirstService’s stock price has only grown 1.7% year over year.
While that is not quite encouraging, FSV shares have still grown at a compound annual
growth rate (CAGR) of 24.9% over the past five years.; in that same time
period, the S&P 500 grew at a CAGR of 13.3% while the MSCI only increased
in price by a CAGR of 4.8%, illustrating that FSV consistently and
significantly outgains the market.
My
Takeaway
Especially following the sharp
decline in price at the start of the 2022 fiscal year, I recommend FirstService
Corp. as a Buy. Since being added to the AIM fund at a price of $49.89
in February of 2017, FSV has generated returns of over 203.3%. With a peak
price of over $200 implying a share price discount of over 30%, as well as a
continued strategy of inorganic growth through mostly cash acquisitions,
FirstService still has much room to grow, especially following the housing boom
during the COVID-19 Pandemic.
