SNC-LAVALIN GROUP INC. $41 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 151.6 million; Market cap: $6.2 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.2%; TSINetwork Rating: Average; www.snclavalin.com) replaced most of its senior management following the discovery of $56 million U.S. in unusual payments it made in 2011 to help win Libyan construction contracts. SNC has also strengthened its oversight and compliance procedures in response to allegations that it used bribes to win certain contracts in Quebec.
These issues haven’t stopped the company from winning new deals. For example, MEG Energy (Toronto symbol MEG) recently hired SNC to design a new processing facility at its oil sands operation in Alberta.
However, SNC lost $37.7 million, or $0.25 a share, in the three months ended June 30, 2013. That’s mainly due to a $70.1-million charge related to delays building an oil-and-gas project in Algeria. The company also set aside $47.0 million to cover potential losses on a project in Libya that it stopped working on in 2011. A year earlier, SNC earned $31.7 million, or $0.21 a share.
SNC continues to see strong results from its investments in concessions, which are rights that governments grant to run public facilities. The company’s main concessions include its 16.77% stake in Highway 407, a toll route north of Toronto, and wholly owned AltaLink, which transmits electricity through 12,000 kilometres of power lines and 270 substations in Alberta.
Concession revenue jumped 48.1% in the latest quarter, which helped offset weaker revenue from engineering projects. As a result, overall revenue rose 1.9%, to $1.94 billion from $1.91 billion.
SNC ended the quarter with an order backlog of $9.65 billion, which is equal to 1.2 times its 2012 revenue.
We feel the company’s quick response to the bribery allegations prevented any permanent damage to its reputation. The stock trades at 18.7 times the $2.19 a share that SNC will likely earn in 2013.
However, its 2014 earnings could reach $2.44 a share. The stock trades at a more reasonable 16.8 times that forecast. The $0.92 dividend yields 2.2%.
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