Skip to main content

Investment Ideas SNC-Lavalin is crushing the returns of the TSX and many see more upside

SNC is among the finalists to build the Gordie Howe International Bridge between Detroit and Windsor, Ont.

Dave Chidley/AP

SNC-Lavalin Group Inc., the Canadian construction company that spent decades building roads, smelters and power plants from Alaska to Australia, has its sights on a piece of the $120-billion infrastructure spending boom planned in its home country.

At least 10 rail and public transit projects in cities from Toronto to Calgary are in the planning stages, turning Canada into an "incredible market," according to Ian Edwards, president of SNC's infrastructure unit. The company has the expertise for such contracts, having built systems such as the Canada Line rapid-transit project in Vancouver.

The spending boost by Prime Minister Justin Trudeau is adding to investor optimism that SNC chief executive officer Neil Bruce will almost double the pretax profit margin to 7 per cent in the engineering and construction unit by the end of next year. The builder climbed last week to the highest since September, 2014, when shares started a long decline because of weak results and tumbling oil prices.

Story continues below advertisement

"There's more upside here," Anthony Zicha, an analyst at Scotiabank, said by telephone from Montreal. "I don't think the stock reflects the potential of future infrastructure contracts that SNC is going to bid on."

SNC has climbed 25 per cent this year to $51.35. That's three times the gain of the S&P/TSX composite index and double the advance of the nearest construction rival, Aecon Group Inc. SNC had earlier been tarred by a corruption scandal involving former CEO Pierre Duhaime, who quit in March, 2012, and was later charged with fraud. He's still awaiting trial and none of the allegations have been proven in court.

SNC is among the finalists to build the Gordie Howe International Bridge between Detroit and Windsor, Ont., which may carry a price tag of more than $4-billion. It's also in the running for the Toronto area's Finch West light-rail transit system, which is valued at about $1.2-billion by Yuri Lynk, an analyst at Canaccord Genuity.

In all, Montreal-based SNC could bid on at least $16-billion of work in its home country, Mr. Lynk said.

"The next decade in Canada is really all about transport infrastructure – it's rail, it's road, it's replacement of bridges," Mr. Edwards said in an interview at SNC headquarters. "Over the next 10 years you should see an almost exponential increase in spending."

Mr. Trudeau's infrastructure pledge includes about $12-billion in new cash over five years for quick turnaround projects such as public transit upgrades, investments in water systems and affordable housing. The government will begin spending on longer-term projects – what it calls Phase 2 of its plan – starting in 2018, with new expenditures peaking in 2025 at almost $10-billion.

For SNC, infrastructure generated first-quarter sales of $577-million, or 29 per cent of revenue. About 41 per cent of the company's backlog of future work, or $5.5-billion, is tied to the unit that Mr. Edwards runs.

Story continues below advertisement

SNC will have to fend off plenty of rivals. WSP Global Inc. plans to bid on future contracts and transport projects are "right in our sweet spot," said Isabelle Adjahi, a spokeswoman for the Montreal-based company. Spain's Acciona SA, Toronto-based Aecon and Stantec Inc. of Edmonton are also among the likely participants, according to representatives for the companies.

"There's a very robust pipeline of projects here, particularly in the transportation sector," Darren Sokoloski, who runs Acciona's Canadian infrastructure operations, said from Vancouver. "When you put everything together it's not hard to get to $15-billion or $20-billion worth of projects. We are following everything with great interest."

Aecon is "well positioned to successfully bid on, secure, and deliver" infrastructure projects in Canada, "and this is expected to lead to ongoing growth in this segment in 2016 and 2017," CEO Teri McKibbon said in an e-mail.

The focus on Canada doesn't mean SNC is giving up on projects abroad. Opportunities also exist in the Middle East as well as the United States, Mr. Edwards said.

Still, one of the biggest prizes will be right in the company's backyard: a $5.5-billion light-rail system being planned in Montreal by the Caisse de dépôt et placement du Québec. The Caisse, Canada's second-largest pension fund manager, is seeking permission to build the 67-kilometre network, provided the federal and provincial governments both chip in.

With construction set to begin next year, Mr. Edwards said his company wants to bid for the work – especially since the proposed route would cross the Champlain Bridge, which SNC is building.

Story continues below advertisement

"It's a great job," Mr. Edwards said of the Caisse's proposed rail system. "We're really interested in it. It's in our hometown, so we're going to put a good consortium together for that."

Report an error
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter