CBRE Group: Fundamental Financial Stock for the Portfolio (NYSE: CBRE)
Like many companies, business took a dive in 2020 and shareholders discovered which investments provided stability and had quality operations. The CBRE Group (CBRE) is such a company, with a multitude of diverse operations in a massive industry, making it the largest commercial real estate investment and services company in the world. CBRE Group has seen steady growth over the past few years and has rebounded exceptionally well from the 2020 downturn. Trading around 20x earnings, the company is quite well-regarded for its stability, consistency and continued growth.
Financial history and 2020
As can be seen above, CBRE Group has experienced steady revenue growth over the past few years. Excluding 2020, the company saw total revenue growth of 8.3% and fee revenue growth of 7.9% annually. In 2020, this revenue growth slowed due to the pandemic, which saw total revenue and royalty revenue decline by 0.3% and 8.2%, respectively. In 2020, CBRE Group experienced a decline in sales and rental income of 22% and 27% due to COVID-19, which was the main driver of this decline.
Just as revenues have increased over the past few years, operating profit and net income have also increased. Operating profit grew at a rate of 11.44%, while net profit grew at a growth rate of 21.88%. Of course, this again excludes last year’s results, as the decline in revenue due to the effects of COVID-19 trickled down to the income statement. Some things of note in 2020 that also suppressed net income were a 1.5% increase in costs and the write-off of funding costs on extinguished debt of $76 million. In recent years, the operating margin fluctuates regularly around 4.7-5.8%. In short, the CBRE group showed consistent and stable operations.
A closer look at each segment shows the underlying reasons for the patterns above. As can be seen, counseling services has been the breadwinner segment of the CBRE group. The Advisory Services segment holds businesses, such as project and property management, valuations, capital markets, loan servicing and advisory leasing. Consulting leasing represents nearly 40% of the segment’s revenues and experienced total growth of 26% from 2017 to 2019. Other activities in this segment grew by 19% over the same period. In total, the Advisory Service segment experienced strong growth of 6.77% per year, down to a decline of 16.4% last year. The second-largest segment, Global Workplace Solutions, grew 43% overall from 2017 to 2020 and is the largest differentiated source of fee revenue. The real estate investment segment of the CBRE group increased in total by 82%, but on a much smaller scale. Part of the growth in this segment in 2020 is due to the acquisition of Telford Homes. Overall, much of the reason for the decline in revenue in 2020 can be attributed to advisory leasing, as this operation saw its fee income decline by 26.5% while other segments and operations held steady. , or even increased.
So far in 2021, the CBRE group has seen business as usual. Total revenue increased 13.5% over last year, and fee revenue increased 18.4%. The operating result is up by 99% and the net result by 161%. This is a full and partial rebound from 2020. On a segment and operating basis, the company saw 6% growth in global workplace solutions, 28% growth in advisory services and a 25% growth in real estate investments. Looking closer, valuation, advisory leasing, investment management, loan servicing and development services are all up 23-25%, while capital markets gained 57%.
When looking at the nine months from 2021 to a more normal period such as 2019. CBRE Group increased its total revenue by 14% and its royalty revenue by 40%. Operating profit and net profit compared to 2019 levels also increased by 40% and 76%. Overall, a full rebound from 2020 and bonus growth.
The CBRE group not only has a solid history of growing and profitable businesses, but also a very healthy balance sheet. The company has high liquidity with a current and fast ratio of 1.35x and 0.98x. This shows that the CBRE Group has the ability to pay all current obligations and retain most of its cash. The debt ratio is only 1.42x, which shows the low debt of the company. Overall, the CBRE Group has a healthy track record for weathering downturns and staying afloat.
As of this writing, the CBRE group is trading at a price level of around $106. At this level, the company has a P/E of 19.88x using this year’s EPS estimate of $5.33. Using 2019 EPS of $3.77, the P/E would be 28.11x. With a book value per share of $23.52, CBRE Group also trades at a P/BV of 4.5x. Given the growth of previous years, a healthy balance sheet and stable business activities, the current valuation appears in line with other companies of this caliber.
Looking at the company as a whole shows CBRE’s massive but steady and growing business. This company is a guarantee of stability and profitability, rebounding from the low of 2020 to post exceptional results. The company trades at around 20x P/E and is worth that price for income statement growth and balance sheet health.