Stocks

ModernGraham Valuation: CBRE Group Inc. (CBG)

moneyCompany Profile (obtained from Google Finance): CBRE Group, Inc is a holding company that conducts all of its operations through its indirect subsidiaries. The Company is a commercial real estate services firm. The Company offers a range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estate. The Company operates in five segments: Americas, Europe, Middle East and Africa (EMEA), Asia Pacific, Global Investment Management and Development Services. In June 2013, the Company acquired SOGESMAINT-CBRE. Effective September 2, 2013, CBRE Group Inc acquired an undisclosed majority interest in Basale Sverige AB, from Basale Gruppen AS, In September 2013, CBRE Group Inc acquired Fameco. In November 2013, CBRE Group Inc acquired Alan Selby & Partners LLP. In December 2013, CBRE Group Inc acquired The CAC Group. Effective December 23, 2013, CBRE Group Inc acquired Norland Managed Services Ltd.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $34.70
MG Opinion Fairly Valued
Value Based on 3% Growth $13.07
Value Based on 0% Growth $7.66
Market Implied Growth Rate 10.31%
Net Current Asset Value (NCAV) -$5.61
PEmg 29.12
Current Ratio 1.39
PB Ratio 4.95

Balance Sheet – 9/30/2013 

Current Assets $2,559,000,000
Current Liabilities $1,842,700,000
Total Debt $1,878,500,000
Total Assets $6,177,300,000
Intangible Assets $2,700,200,000
Total Liabilities $4,419,300,000
Outstanding Shares 331,380,000

Earnings Per Share

2013 (estimate) $1.24
2012 $0.96
2011 $0.72
2010 $0.60
2009 $0.12
2008 -$4.86
2007 $1.65
2006 $1.35
2005 $0.95
2004 $0.30
2003 -$0.63

Earnings Per Share – ModernGraham 

2013 (estimate) $0.90
2012 $0.32
2011 -$0.11
2010 -$0.43
2009 -$0.68
2008 -$0.76

Conclusion:

CBRE Group Inc. is yet another company in a long line of recent reviews that is not suitable for either the Defensive Investor or the Enterprising Investor.  It’s important to note that one of the reasons we put companies through these requirements is to eliminate all but those that present the least amount of risk to investors.  CBRE Group is no different; the company has not had stable earnings over the last ten years, does not pay dividends, has a poor current ratio, has not grown earnings over the ten year period, and is trading at high PEmg and PB ratios.  Defensive Investors and Enterprising Investors would be better suited looking at less risky companies that pass these tests.  From a valuation perspective, the company actually fares somewhat well, having grown EPSmg (normalized earnings) from -$0.76 in 2008 to an estimated $0.90 for 2013.  The market is currently implying a growth rate of 10.31%, and that rate is supported by the historical performance.  As a result, the company would appear to be fairly valued at the present time.

What do you think?  Do you agree that CBRE Group Inc. is fairly valued?  What would be your assessment?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in CBRE Group Inc. (CBG) at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill

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