FirstService
Corp. (FSV, $87.70): “All Grown Up Now”
By:
Brandon Shanklin, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• FirstService Corp. (NYSE:FSV) engages in two segments: Residential
and Branding. Their residential segment
offers property management services in North America. The FirstService Brands
segment covers residential and commercial customers through both franchise
systems, and company-owned operations.
• AX has completed 5
acquisitions in the past 5 months further diversifying their cash flows and
risks.
o
Acquired Lieberman Management Services on February
11th, 2019.
o
Acquired Commercial Fire &
Communications, Inc. and Allied Fire Protection, Inc. on January 10th,
2019.
o
Acquired Community Management Group LLC on
November 12th, 2018.
o
Acquired Condominium Concepts Management
Inc. on November 10th, 2018.
• Revenues for the
quarter were up 13% in total with a robust 8% generated organically, largely
driven by double digit organic growth in their brands segment. Inorganic growth contributed 5% growth in
revenue mainly driven by their two acquisitions of Community Management Group
and Condominium Concepts Management Inc. These further acquisitions should help
spread out risk and diversify their cash flows.
• The FirstService Corporation
Brands segment generated revenues up 25% versus the prior year, which was made
up of 14% organic growth and 11% acquisitions completed in the past year, in
restoration, in fire service, and relating to our company-owned acquisition
strategy at California Closets. The organic growth of 14% was driven by Paul
Davis Restoration and their work in activities from hurricanes Michael and
Florence, plus the wildfires in California, but there was an increase in
working capital requirements to Paul Davis operation, so FirstService cash flow
from operations experienced a year over year decline.
Key
points:
FirstService Corporation has elected to settle
long-term incentive arrangement and eliminate dual class voting structure. This incentive arrangement was implemented in
2004 in the form of stock options and other compensation entitlements. The motivation behind this arrangement was to
motivate entrepreneurial founders/CEOs to create long-term value for
shareholders. From that, FirstService grew
by more than US$3 billion since 2004, representing an annualized return of over
24%. Given the growth of FirstService and strong management team in place, Jay
Hennick announced that he was willing to receive a proposal from FirstService
to terminate the MSA and unwind the dual class share structure, thereby
relinquishing his effective control of the Company. The transaction according
to FirstService will create alignment among all FirstService shareholders, each
of whom will own the same class of voting shares. In addition, the Transaction
will facilitate an orderly transition by providing shareholders and the Board
of Directors with greater flexibility to determine the future direction of the
Company. As a result, FirstService
Corporation will also issue a total of 2.92M subordinate voting shares.
FirstService Corporation
recent acquisitions of Condo Concepts and Community Management hold market
leading positions in Atlanta and Charleston and with that they significantly
increase their presence in both markets.
Also, what’s most exciting is Condo Concepts provides FirstService
Corporation with a larger footprint in the fast-growing Nashville market, which
they believe they can quickly capitalize on post integration after introducing their
systems and differentiators.
FirstService Corporation
announced on March 20th, 2019 that it has implemented an e-Commerce
platform with California Closets Essentials, a curated collection of
best-in-class closet accessories designed to create a more comprehensive brand
experience for customers. Featuring an
initial rollout of 8 product categories and over 150 items, the private-label
offering is assembled for superior performance and style, has allowed
California Closets Essentials, a subsidiary of FirstService Corporation, to now
become a full-service organizational resource.
11% increase in dividend
to $0.60 per share up from the prior $0.54 in Q4, which is the fourth
consecutive annual dividend hike of 10% plus since separating from Colliers
International in 2015.
What
has the stock done lately?
With the effects of their
implementation of their acquisitions starting to be realized, FirstService
Corporation stock is up 28.32% in the past three months. In the past month it reached its high at $90.20
and currently is at $85.22. With the most
recent acquisitions, FirstService corporation must take advantage of its
inorganic additions and follow similar guidelines as it has in the past to
implement these acquisitions effectively.
Past
Year Performance:
FirstService Corporation is lurking around
it’s 52-week of $90.22 and is currently at $85.22, with the low being $64.87 in
its 52 week range. In the past three
months there has been a stock growth of 28.32% which is strong, but it should
not overshadow its 20.88% stock growth overall in the past year.
Source:
FactSet
My
Takeaway:
FirstService Corporation
has put up some major productive numbers the past five years since their
spin-off from Colliers International, especially under the guidance of Jay
Hennick. Now with FirstService
Corporation being “all grown up now” being groomed by Jay Hennick, he has
decided to give up effective control of the company. Jay Hennick is still the active Chairman so
the company is still under good hands, but with the lose of effective control
hopefully objectives and growth get stunted by it. Management has a proven track record and has
proven production and efficiency, especially with implementations of
acquisitions. With the recent
acquisitions, I believe it will further diversify FirstService Corporation’s
cash flow and risks, setting them up for further growth and efficiency.
Source:
FactSet
