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The Skikda thermal power plant, one of SNC-Lavalin's projects in Algeria
The Skikda thermal power plant, one of SNC-Lavalin's projects in Algeria

Bids for SNC-Lavalin? Not so fast Add to ...

The Financial Post, on its front page on Tuesday, has dangled the intriguing possibility that SNC-Lavalin Group Inc. might be a takeover candidate because its share price has slumped 28 per cent this year. The evidence – the stock is cheap next to rivals – is far from convincing, especially given that analysts remain upbeat about the engineering company’s prospects. If they’re right, any takeover bid would be seen as opportunistic and likely rejected by shareholders.

Indeed, analysts seem to be standing behind SNC-Lavalin not because they think bids are coming, but because the recent turmoil surrounding the company – the missing money, the departure of key executives – might not be interfering with its ability to attract new business.

Pierre Lacroix, an analyst at Desjardins Securities, reiterated a “buy” recommendation and a $54 price target on Tuesday, implying gains of about 46 per cent from Monday’s closing price.

On Tuesday morning SNC-Lavalin announced that it had won a contract to design and build portions of AltaLink’s transmission lines in Alberta, worth about $1.6-billion over five years. Okay, SNC owns AltaLink. However, Mr. Lacroix believes the win is still significant because the bidding process was open and involved a risk that SNC wouldn’t be awarded big parts of the contract.

“This contract, combined with recent wins (total value of $1.5-billion to $2-billion Canadian), should offset, to a reasonable degree, investors’ concerns about SNC’s ability to win new business following recent internal issues,” he said in a note.

“We would also point out that SNC was short-listed last week in two major U.S. infrastructure projects in Indiana ($1.3-billion Canadian East End Crossing PPP project) and Texas ($4.4-billion U.S. I-35E interstate highway project). Recall that SNC management indicated last year that it intends to develop a greater presence in the US infrastructure market.”

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