As the real estate market continues to improve, so do the fortunes of this commercial real estate services and investment company.
CBRE Group (CBG)
from Barclays Capital Equity Research
We attended CBRE Group’s (CBG) annual business review day in New York yesterday. Each of the company’s core businesses and regions appears poised for positive growth and we have updated our model to reflect recent acquisitions.
CBG has announced several acquisitions this month, including KLMK Group, Alan Selby & Partners, CB Richard Ellis Carmody, and Norland Managed Services (not to mention the September acquisition of Fameco). KLMK Group is notable for enhancing CBG’s penetration into the healthcare sector, while the Norland deal in London will clearly have the largest near-term impact. Management suggested it will continue to pursue M&A opportunities; this could drive upside to our estimates.
Conditions are improving in EMEA, and CBG believes it is a good time to invest in the region; the Norland deal is one example.
Prior to acquiring Norland, CBG earned roughly 17% of its revenue in the region and 9% of adjusted EBITDA (FY2013 estimates). We expect these figures to grow to 24% and 15%, respectively, in 2014.
We are raising our 2014 AEPS estimate to $1.73, from $1.63, primarily to reflect the Norland acquisition. Our updated estimates imply 16% YOY AEPS growth in 2013, 23% in 2014 and an average of 16% annually from 2012-2017.
We are increasing our 12-month price target to $27, from $26, based on a $26.65 DCF (75% weighting) and $26.41 sentiment/regression value (25%). Our target implies 15.6x 2014E AEPS and an 18.5% return. Our previous $26 target was based on a $26.42 DCF and $26.41 sentiment/regression value.
We continue to believe CBG deserves a roughly 5%-10% multiple premium to its closest public competitor, JLL (OW/Neu), largely based in its greater scale and higher margins. Therefore, while we think there is upside to both stocks, we would favor CBG at its current 3% 2014E AEPS multiple discount to JLL.
Michael R. Lewis and Ross L. Smotrich, Barclays Capital Equity Research, www.barcap.com, 212-526-2306, November 22, 2013