Pat McKeough responds to many requests from members of his Inner Circle for specific tips on trading stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “U.S. Stock Picks” on Thursday.
This week an Inner Circle member asked us about Canadian engineering firm WPS Group. This firm’s growth strategy centres on the steady acquisition of smaller firms. This approach (similar to that of Edmonton-based engineering firm Stantec, a stock we follow in Stock Pickers Digest) has been producing profitable results for WPS. Pat examines all four of the company’s 2014 acquisitions and assesses the risk that comes with the acquisition and integration of new firms.
Q: Dear Pat: I would like to have your opinion on WSP Global. Thank you very much.
A: WSP Global (symbol WSP on Toronto; www.wspgroup.com) consults on engineering projects for public and private sector clients around the world. It employs about 17,500 people, mainly engineers, technicians, scientists, environmental experts and architects, in more than 300 offices across 30 countries.
In the three months ended September 27, 2014, WSP’s revenue jumped 31.8%, to $537.4 million from $407.6 million a year earlier. Earnings per share gained 9.3%, to $0.46 from $0.43.
WSP continues to grow rapidly by acquisition. The latest is its $1.35-billion purchase of Parsons Brinckerhoff, U.K.-based Balfour Beatty plc’s professional service business.
The deal lets Montreal-based WSP build on its established business in the U.K., increase its relatively small presence in the U.S. and gain exposure to growing regions like Asia and Australia.
Three earlier 2014 acquisitions added firms in Alberta, France and Australia
WSP made three other acquisitions earlier this year:
On April 10, 2014, WSP concluded the acquisition of Focus Group Holdings, an 1,800-employee engineering firm in Alberta.
On April 7, 2014, WSP signed an agreement to acquire Technip TPS, a French subsidiary of Technip S.A., which specializes in building and infrastructure engineering. The deal closed on April 30, 2014, and added about 100 people to the company’s workforce.
On June 1, 2014, WSP acquired WINWARD Group, an Australian engineering firm that specializes in structural services. This purchase added 50 people to WSP’s Australian staff.
WSP operates in the same business as Stantec, symbol STN on Toronto, a hold recommendation of Stock Pickers Digest. However, WSP has a broader international presence.
Like Stantec, WSP cuts its costs by sharing administrative expenses, financing and employee benefits among its divisions. WSP’s outlook is positive, but also like Stantec, it continually buys and integrates new companies. That adds risk, including the risk of writedowns.
The stock trades at 15.3 times next year’s forecast earnings of $2.20 a share. It yields a high 4.5%.
We view WSP Global as a hold.
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