SNC-LAVALIN GROUP INC. $45 - Toronto symbol SNC

SNC-LAVALIN GROUP INC. $45 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 151.1 million; Market cap: $6.8 billion; Price-to-sales ratio: 0.8; Dividend yield: 2.0%; TSINetwork Rating: Average; www.snclavalin.com) has held up well in the face of negative press coverage, beginning with $56 million U.S. in unusual payments it made in 2011 to help win Libyan construction contracts. Lately, the company has come under scrutiny over allegations of widespread corruption in the Quebec construction industry.

SNC’s quick response to these situations, including replacing its chief executive officer and other executives, helped prevent permanent damage to its 102-year-old reputation. It has also brought in stronger oversight and compliance procedures.

Due to higher than-expected costs on a powerplant project, SNC’s 2012 earnings fell 18.4%, to $309.1 million, or $2.04 a share. In 2011, the company earned $378.8 million, or $2.49 a share.

Even with the Libyan controversy, SNC continues to win new engineering contracts. That helped push up its revenue by 12.2% in 2012, to $8.1 billion from $7.2 billion. The company ended the year with an order backlog of $10.1 billion, which is equal to 1.25 times its 2012 revenue.

SNC is now conducting a strategic review of its operations. This could include selling some of its concession investments. (Concessions are rights granted by governments 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 in Alberta through 12,000 kilometres of power lines and 270 substations.

In 2012, earnings from concessions rose 19.6%, to $156.9 million (or 36.9% of SNC’s total) from $131.2 million (or 26.0%) in 2011.

The stock is up 31.0% from its September 2012 low of $34.36. It now trades at a reasonable 18.8 times the $2.39 a share that SNC will probably earn in 2013. The company has also raised its quarterly dividend by 4.5%, to $0.23 a share from $0.22. The new annual rate of $0.92 yields 2.0%.

SNC-Lavalin is a buy.

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