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Aecon’s constructing a solid turnaround story

File phonot of Aecon road crews working on Highway 407 near Highway 427 in Toronto.

Kevin Van Paassen/The Globe and Mail

T he future was looking pretty grim for Aecon Group Inc. just one year ago. Though its stock had been on a the road to recovery following the Great Recession, the bottom fell was starting to fall out and the shares were slipping back into a slump.

Yet in the past nine months or so, the construction company has completely turned itself around -- digging itself out of what one analyst dubbed the "proverbial doghouse." Since last June, the stock is up almost 60 per cent.

Can it keep soaring? The future is never certain, but the firm held its first ever investor day this week to build some confidence.

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First and foremost on management's mind: margins. Currently, they sit around 6 per cent. The plan is to boost them to 9 per cent by 2015. This is expected to be accomplished by completing lower margin recession jobs and working through higher margin stuff in the cooker.

Aecon is also focused on better administration of its projects. The firm has beefed up its internal staff to ensure "there isn't any stone left unturned in terms of due diligence," chief executive officer John Beck said on a recent quarterly earnings call.

The firm's also got two individuals, one who focuses on industrial contracts and another who tackles infrastructure, whose jobs are to keep tight track of projects. Keeping a lid on costs will obviously boost margins.

"For all that Aecon achieved last year, we believe there are significantly more benefits that have yet to fully accrue to investors in the quarters to come," Raymond James analyst Frederic Bastien noted after the investor day. His reasoning included the recent decision to bring different business units together in order to complete more complex projects, and Aecon's diversified portfolio that ensures it isn't overly dependent on one sector.

Plus, the firm just announced a backlog of $2.66-billion af of May 31, which is $300-million higher than what it was just two months earlier. Recent contracts the firm has won include a $600-million joint venture with SNC-Lavalin to refurbish Ontario's Darlington nuclear station, and $250-million agreement to do interior work on a new process mill for Potash Corp. of Saskatchewan.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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