SNC-LAVALIN GROUP INC. $40(Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 152.5 million; Market cap: $6.1 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.4%; TSINetwork Rating: Average; www.snclavalin.com) is narrowing its focus to engineering projects in the oil and gas, mining and water treatment industries.
As part of this plan, it recently paid $2.1 billion for U.K.-based Kentz Corp., which supplies engineering and construction services to oil and gas firms. Kentz increased SNC’s exposure to fastgrowing regions like the Middle East, Asia and Australia.
To pay for Kentz, SNC recently sold AltaLink, which distributes electricity in Alberta, for $3.1 billion.
However, lower commodity prices have prompted mining firms to slow their expansions. Meanwhile, less profitable contracts signed by SNC’s previous management continue to weigh on its earnings.
To improve profits, SNC plans to cut 9% of its workforce over the next 18 months. Severance payments and other costs will total $300 million, but the layoffs will reduce SNC’s annual expenses by $100 million, starting in 2015.
In the three months ended September 30, 2014, the company earned $69.7 million, or $0.45 a share, That’s up from a loss of $72.5 million, or $0.48, a year earlier. Revenue gained 3.0%, to $2.0 billion from $1.95 billion.
Excluding unusual items, SNC now expects to earn $2.15 to $2.40 a share for all of 2014, down from its earlier forecast of $2.80 to $3.05. The stock trades at a still reasonable 17.6 times the midpoint of SNC’s new range.
The company will likely keep selling lessimportant assets, like its 16.77% stake in Ontario’s Highway 407, which would unlock more of its value. The $0.96 dividend yields 2.4%.
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