SNC Lavalin $32 – Toronto symbol SNC

SNC-LAVALIN GROUP INC. $32 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; SI Rating: Average) is one of the world’s leading design and engineering companies, with operations in over 100 countries. It specializes in large public works projects like bridges and water treatment systems.

The company is also a leading builder of electrical power plants and transmission systems. The recent rise in energy prices is good news for SNC, since many utilities are now looking for ways to cut consumption of oil and natural gas. High oil prices have also spurred interest in nuclear power plants.

Another way SNC should benefit from high oil is from more public transit. SNC has designed and built mass transit systems in some of the world’s biggest cities.

In the third quarter of 2006, SNC’s earnings rose 55.6%, to $0.28 a share (total $42.7 million) from $0.18 a share ($27.2 million) a year earlier. Revenue grew 43.0%, to $1.3 billion from $908.9 million, due to acquisitions.

A growing part of SNC’s business is concession projects to run public facilities. The biggest of SNC’s concessions is its 16.77% interest in Highway 407, a toll highway just north of Toronto. This investment alone is worth roughly $9 per SNC share.

SNC is using its strong cash flow to fund new investments. It recently spent $50 million for 6.4% of Gaz Metro LP, a major distributor of natural gas in Quebec, and $62 million U.S. for a 5% stake in a nickel mine in Madagascar.

The stock has more than tripled in the past five years. It now trades at 32 times its projected 2006 profit of $1.00 a share, and at 22.5 times forecast cash flow of $1.42 a share. That’s expensive for a company in a cyclical industry, particularly when it is so closely tied to large infrastructure projects in the Middle East and other politically unstable areas. The $0.28 dividend yields 0.9%.

SNC-Lavalin is a hold.

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