Pat McKeough responds to many requests from members of his Inner Circle. Every week, his comments on the most intriguing questions of the past week go out to all Inner Circle members. Each week, we offer you a highlight from these Q&A sessions.
Q: Hi, Pat: Please give me your opinion on Aecon Group considering the takeover offer by a Chinese firm. Thanks.
A: Aecon Group Inc. (symbol ARE on Toronto; www.aecon.com) is one of Canada’s largest infrastructure developers. Aecon and its predecessors built Canadian landmarks like the CN Tower, the St. Lawrence Seaway, the Calgary Olympic Oval and the Halifax Shipyards.
Aecon is now the subject of a $1.51 billion takeover bid from China’s CCCC International Holding Ltd. CCCC is a publicly traded company in Hong Kong and Shanghai.
CCCC is offering $20.37 a share in cash.
The acquisition still requires regulatory approvals under the Investment Canada Act, the Canadian Competition Act and from relevant authorities in China.
CCCI has agreed to keep Aecon’s headquarters in Canada and retain Aecon’s Canada-based employees.
Aecon has three main divisions:
- The Energy Group builds facilities and components for clients in the power industry, including nuclear reactors.
- The Infrastructure Group builds roads, bridges, tunnels and public transit projects. It also sells asphalt and aggregates (crushed stone and gravel), key ingredients for making concrete.
- The Mining Group develops, builds and maintains mines and oil and gas properties. It also builds related infrastructure, like roads and waste-management systems, and helps clients restore their sites and plant new trees.
In addition, Aecon develops, finances and operates public infrastructure projects.
Canadian growth stocks: Weaker commodity markets slow sales and profits
In the three months ended September 30, 2017, Aecon’s revenue fell 9.4%, to $759.7 million from $838.1 million a year earlier. That’s partly because of continued soft commodity and oil markets resulting in fewer projects.
Earnings fell 10.2%, to $24.6 million, or $0.42 a share, from $27.4 million, or $0.48.
Aecon ended September with an order backlog of $4.32 billion. Meantime, the company’s strong reputation continues to help it win contracts.
Inner Circle recommendation: HOLD if you own it, but it’s too late for new buying.
