Friday, March 19, 2021

An International Equity holding: FirstService Corp. (FSV, $149.35): “Keeping the Curb Appeal” by: Brett Selke, AIM Student at Marquette University

 FirstService Corp. (FSV, $149.35): “Keeping the Curb Appeal”

By: Brett Selke, 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.


• FirstService Corp (NYSE:FSV) Is a real estate company that operates in two segments: Residential and Branding. The FirstService Residential segment accounts for 51% of revenue and consists of property management services. The FirstService Branding segment accounts for 49% consists of essential property services covering both residential and commercial customers.

• Despite the M&A market being severely depleted over the past year due to COVID-19, FirstService has completed 3 acquisitions over the last 7 months to diversify its cash flows.

• Acquired Aegis Fire Protection, LLC on December 9th, 2020

• Acquired Cornet, Inc. on December 9th, 2020

• Acquired Rolyn Companies, Inc. on July 2nd, 2020  

• Since being added to the portfolio in 2017, at $49.89 with a price target of $60, FSV has been one of the portfolio’s best performers. It has produced a return of nearly 200% for the portfolio. Instead of trying to financially survive during the COVID-19 pandemic, FirstService has instead aggressively increased their revenues specifically, its Brand’s segment. In 2019, Residential made up 59% of total revenue, while the Brand’s segment accounted for 41% of revenue. However in 2020, Brand’s accounted for 49% of total revenue whereas Residential accounted for 51%. 

• FirstService had an excellent 4th quarter, posting revenue, EBITDA, and EPS growth of 15%, 25%, and 55% respectively versus 2019’s 4th quarter. Despite the COVID-19 pandemic, FirstService had another strong fiscal year, posting an annual revenue growth, EBITDA growth, and EPS growth of 15%, 21%, and 15% respectively.

• The FirstService Residential segment of the business  posted an annual revenue growth of  4.46% driven by home resales and project maintenance and management. Specifically, the Midwest market this quarter was a huge revenue source for the segment because of wind and hail damage sustained during the quarter. The FirstService Brands segment of the company exhibited a tremendous 36.36% annual revenue growth. Various acquisitions over the past year contributed for 18% organic growth in the Brands segment. The backlog of work caused by the aftermath of the Iowa windstorms and hurricane Laura in August was a key driver of 26% revenue growth for this segment this past quarter. 

Key points:

FirstService Corporation has finally completed their long-term incentive agreement that has been in the works for years and has terminated their complex dual class share structure. FSV has converted all of its outstanding shares as common shares, including their multiple voting shares and subordinate voting shares. The prior dual class share structure was created by their founder and former CEO, Jay S. Hennick and since his retirement in 2015, the company has been working to eliminate the share structure.

FirstService Corporation’s most recent acquisitions, Aegis Fire Protection and Cornet, Inc, lead their respective markets in Kansas City and Washington D.C. respectively. Cornet Inc, is an especially lucrative acquisition because Washington D.C. is the 6th largest metropolitan region in the country. Both markets were currently underrepresented, and the acquisitions are expected to accelerate growth in those regions while strengthening their position in those markets as well. 

FSV announced an 11% increase to its quarterly dividend, declaring a dividend of $0.1825. It’s annualized dividend will be $0.73, up from $0.66 over the past year. This is the sixth consecutive year of increasing their dividends by more than 10% which is exceptional. 

What has the stock done lately?

Over the past three months, FSV’s stock value has increased from $132.06 to $149.35 for a growth of 10.8%. The stock’s value ranged from $128.62 to $156.50 over the past three months. The stock recently hit its all-time high earlier this month after announcing its Q4 earnings and its dividend increase. FSV has had remarkable success lately; however, they must continue to aggressively pursue their business strategy and continue to increase their market share which is currently 6%.

Past Year Performance: 

FSV’s stock has increased 43.25% in value over the past year and ranged from $57.38 to $156.50. Last March when COVID-19 devastated the markets, FSV lost 44% of their stock value almost overnight. Since March, the stock rebounded and has been growing at an exceptional rate and recently reached its all-time high. The main driver of this growth has been increased revenue growth from FSV’s Brand’s segment in servicing their clients after weather related events.

Source: FactSet

My Takeaway

FirstService has exhibited tremendous consistent growth year after year even through some difficult financial circumstances. The company has also consistently show an ability to synergize and integrate new acquisitions and leverage them to expand its revenues. Moving forward after COVID-19, it will be important for FSV’s Residential segment to continue to expand its revenue growth to keep up with the Brand’s segment revenue growth. Additionally, although 2020 was a down-year in the M&A market, FSV will need to continue its aggressive approach of acquiring and integrating companies to diversify its cash flows, geographic market exposure, and increase revenues. Due to FSV’s increase in dividends, acquisition synergy, and their Brand segment growth; I believe that FSV will continue to thrive for the foreseeable future and I recommend holding the stock in our portfolio.

Source: FactSet