SNC-LAVALIN GROUP INC. $55 (Toronto symbol SNC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 150.1 million; Market cap: $8.3 billion; Price-to-sales ratio: 0.9; Dividend yield: 1.9%; TSINetwork Rating: Average; www.snclavalin.com) is a leading Canadian engineering and construction company that specializes in large-scale public works projects such as roads, bridges, transit systems and watertreatment plants.
In the three months ended March 31, 2016, the company’s revenue fell 11.9%, to $1.99 billion from $2.26 billion a year earlier.
The drop was mainly due to lower revenue from infrastructure, power plants and mining projects. However, new projects in the Middle East boosted revenue at its oil and gas operations. Oil and gas clients now supply 43% of SNC’s total revenue.
Earnings in the quarter rose 3.0%, to $97.0 million, or $0.64 a share. A year earlier, SNC earned $94.2 million, or $0.62.
The higher profit is largely due to the company’s new cost-cutting plan. This includes laying off 2% of its workers. The plan should remove $100 million from its annual costs by the end of 2016.
SNC is also selling some of its less-important assets. These include its Real Estate Facilities Management business in Canada for $45.0 million. This business maintains and manages buildings.
The company may also sell its 16.77% stake in Highway 407, a toll road just north of Toronto. That could raise around $5 billion.
SNC would probably apply the funds to its long-term debt of $871.1 million (as of March 31, 2016). That’s equal to 10% of its market cap. SNC also held cash of $1.4 billion, or $9.27 a share.
Thanks to the recent rally in oil and gas prices, the company’s stock has jumped 34% since the start of 2016. It now trades at 26.4 times the $2.08 a share it will probably earn this year. That’s a high multiple for a cyclical engineering firm. As well, corruption charges related to construction projects in Libya between 2001 and 2011 add to its risk. The $1.04 dividend yields 1.9%.
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