SNC-LAVALIN GROUP INC. (Toronto symbol SNC; 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-Lavalin 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.
Canadian stocks: Concessions like Ontario Highway 407 continue to generate strong results
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. 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. The $0.92 dividend yields 2.2%.
In the latest edition of The Successful Investor, we consider whether SNC-Lavalin’s quick response to bribery allegations will be enough to prevent permanent damage to its reputation. We also look at the company’s financial outlook and whether the increase in concession revenue will offset weaker revenue from engineering projects. We conclude with our clear buy-sell-hold advice on the stock.
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