SNC-LAVALIN GROUP INC. $39(Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 161.1 million; Market cap: $6.3 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.3%; TSINetwork Rating: Average; www.snclavalin.com) is a leading Canadian engineering and construction company. It specializes in large-scale public works projects, such as roads, bridges, transit systems and water-treatment plants.
SNC’s shares fell from around $48 in February 2012 after the company discovered $35 million of unusual payments related to certain construction contracts.
A panel of independent directors and lawyers later found another unusual payment, bringing the total to around $56 million. The company didn’t say which projects are connected to these transactions.
In response to this report, SNC’s chief executive officer resigned, and the police started an investigation.
The unauthorized payments seem small next to SNC’s market cap. As well, they appear to be limited to just two of the thousands of projects that SNC is currently working on.
Meanwhile, SNC earned $67.1 million, or $0.44 a share, in the three months ended March 31, 2012. That’s down 11.8% from $76.1 million, or $0.50 a share, a year earlier. The drop is partly because SNC spent $5.4 million investigating the unusual payments. Lower demand for new mining projects also held back earnings.
However, revenue rose 8.8%, to $1.8 billion from $1.6 billion. That’s mainly due to the contribution of AltaLink, which provides electricity to 85% of Alberta’s population through 12,000 kilometres of power lines and 270 substations. SNC increased its stake in AltaLink from 76.92% to 100% in September 2011.
As of March 31, 2012, SNC’s order backlog was $10.5 billion, up from $10.1 billion at the end of 2011.
The company will probably earn $2.60 a share in 2012. The shares trade at a reasonable 15.0 times that forecast. However, SNC’s stock will likely make little progress until the company appoints a new CEO and clarifies the nature of the unusual payments. The $0.88 dividend yields 2.3%.
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