Topics Growth Stocks

FirstService Corp. $63.94 - Toronto symbol FSV

FIRSTSERVICE CORP. $63.94 (Toronto symbol FSV; TSINetwork Rating: Extra Risk) (416-960-9500; www.firstservice.com; Shares outstanding: 34.7 million; Market cap: $2.3 billion; Dividend yield: 0.9%) set up its commercial real estate business, Colliers International Group, as a separate company on June 2, 2015.

Now that the spinoff is complete, FirstService is carrying on with its residential property management and its commercial and residential propertyimprovement services.

In the second quarter, ended June 30, 2016, the company’s revenue rose 18.0%, to $326.3 million from $272.2 million a year earlier (all figures except share price in U.S. dollars).

Excluding Colliers and one-time items, earnings per share for the quarter jumped 30.0%, to $0.52 from $0.40 a year earlier. The results suggest the company is on target to make $1.56 U.S. a share for 2016—the second and third quarters are its busiest.

With the April 2016 payment, FirstService raised its quarterly dividend by 10.0%, to $0.11 U.S. from $0.10 U.S. The stock yields 0.9%.

The company’s outlook remains strong. The spinoff of Colliers International Group adds to its appeal. That’s because in most academic studies on the subject of spinoffs, both the parent and spinoff company do better than comparable firms for several years after they split. That’s certainly been our experience.

However, FirstService trades at a high 31.3 times the $1.56 U.S. a share the company will likely earn in 2016.

FirstService is a hold.

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Spinoffs

One of the ways a company can try to unlock its own hidden value is by creating a separate company out of a corporate subsidiary. The parent company can either sell stock in the new company to the public, or spin it off—hand the stock out to its own investors.

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