CBRE GroupCBRE80,27 $
Today we have a moderately speculative idea.: take stock in warehouse management company CBRE Group (NYSE: CBRE) hoping for her transformation.
Growth potential and validity: 14,5% behind 14 Months; 33% behind 3 of the year; 9% per annum during 20 years.
Why stocks can go up: because the company has hit a dead end and is asking for a campaign from an activist investor.
How do we act: we take shares now by 82,65 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
The company deals with real estate. According to CBRE annual report, its revenue is arranged as follows:
- Object Management - 17,6%. Commercial property management services.
- Property Management - 6,1%. Commercial property management, but from an engineering and financial point of view.
- Project management - 5,5%. Fulfillment of one-time orders for customers.
- Valuation activity — 2,6%.
- Debt servicing - 1,1%.
- Leasing consultations — 11,9%.
- Sales Consulting - 10,1%.
- Mortgage Applications - 2,5%. Assistance for clients in obtaining mortgage loans for commercial real estate.
- Investment management - 2%. Everything, what is connected with the investment of institutional players in real estate.
- Development Services - 1,9%. Construction segment.
- Acting as an intermediary in the implementation of transactions by clients on accounts of third-party companies - 38,7%.
Revenue by country and region:
- USA - 56,58%.
- Other, unnamed countries - 30,39%.
Arguments in favor of the company
Fell down. The company's shares have fallen sharply since the beginning of the year.: in early January they were asked for 110 $, now they cost a little less 83 $. I have long wanted to make an investment idea for this company, but the rapid growth of its quotes over the past year made us afraid of a correction. Well, the correction has finally happened., and we can take these stocks with the expectation of a rebound.
Activism Time. The company could well pay good dividends - in the area 3 $ per share per year, which would give a decent return more 3% per annum. Her business is quite stable., so she can afford it, and a cheeky activist may well demand it.
Inexpensive. P / S at the company 0,9, a P / E — 13,3.
A finger in every pie. The American real estate market must literally fly to hell in order to, to stop CBRE from making money. Hell is not yet visible on the horizon, and CBRE can sleep easy and keep making money from it.
Unfortunately, We do not know, what percentage of the company's revenue comes from offices. There is an assumption, that sales there should be falling due to the coronacrisis. But, judging by the charts with the profitability of the company, she is more than fine, which means, other types of real estate provide CBRE with enough work.
Maybe, even promising. The combination of volatility in the markets with the most powerful inflation can lead to an increase in investments as institutional, and private investors in the real estate sector. We've been through all this before.: "We need to beat inflation", "but own", “you can pass it on to children” and “this thing is more real than these shares of yours”.
And such an influx of money into the real estate market will indirectly contribute to the growth of CBRE revenues., because the residential real estate market will quickly overheat in the event of such a massive influx and investors will look for diversification in the "promising" areas of commercial real estate.
Can buy. Considering all of the above, I wouldn't be surprised, if the company was bought by some private fund, real estate agent, or a construction magnate. Just for that, to diversify your business. Capitalization at CBRE about 27 billion dollars, so this is quite a feasible purchase for a major player.
What can get in the way
May not activate. Since the beginning of the pandemic, the company's shares have risen by 27,26%, which is not bad even considering the recent fall. Therefore, the pathos of an investor-activist at the voting of investors may not be understood by other shareholders., and he may not get his way: and as a non-dividend common stock, CBRE performed well.
Ricochet. Falling prices in the real estate markets in the US and UK will not necessarily affect the company's revenues directly., but it will certainly have a negative impact on its quotes. As stated elsewhere in other circumstances, "shot one at a time, but hit everyone".
Accounting. The introduction of dividends by the company is hampered by a large amount of debt - 11.86 billion, of which 7.789 billion must be repaid within a year. There is not much money at the disposal of the company: there are 1.657 billion in accounts and almost 6.2 billion in debts of counterparties.
Dividends here can be perceived as excess. And this is also a problem for quotes.: nevertheless, considerable debts can scare away some investors from the company in the light of raising rates and rising prices for loans.
Can buy. Great chance, that the company will spend lavishly on buying various overpriced, money-losing start-ups like Procore, which will make her bookkeeping even harder.
What's the bottom line?
We take shares now by 82,65 $. And then there are several options for the development of events.:
- wait until they grow 95 $. Think, we will reach this level in the next 14 Months;
- wait for them to return to the level 110 $. Here it is better to rely on 3 years of waiting;
- hold shares 20 years in sorrow and joy.
I believe, that the emergence of an activist investor among the shareholders of the company is likely in all cases.
