SNC targets infrastructure projects in Canada
TRANSPORTATION Ottawa, Toronto and Montreal transit lines
Canada’s biggest builder is keeping its focus at home even as U. S. President Donald Trump pledges to ramp up infrastructure spending next door.
SNC- Lavalin Group Inc. is bidding on projects such as light- rail lines in Ottawa and Toronto and a $ 6- billion rapid- transit system for Montreal, as Prime Minister Justin Trudeau follows through on a pledge to invest $ 120 billion on infrastructure over 12 years.
Meanwhile, Trump’s plan is “still to be confirmed,” said SNC chief executive Neil Bruce.
“The Canadian i nfrastructure market is far more attractive for us, certainly in the short term, than the U. S. market,” Bruce said last week in a telephone interview. “If you just look at the whole process, the commitment to do that, the U. S. is starting two or three years behind Canada.”
Bruce is looking to bolster SNC’s backlog of contracts after it tumbled 24 per cent in a year to $ 9.58 billion. While Canadian projects remain a major focus, the Montreal- based company is also adding to its international footprint with its $ 3.6- billion purchase of the U.K.’s WS Atkins PLC, a deal that closed last month.
“If you take the bidding activity that we are involved in, plus our bid-to-win ratio, I’m confident of replenishing the backlog” in the second half, Bruce said.
SNC shares have dropped 7. 3 per c e nt t hi s year through Friday, while Canada’s benchmark S& P/ TSX Composite index was little changed.
In the U. S., Trump has promised a plan to invest US$ 1 trillion over 10 years upgrading deteriorating roads, bridges, airports and other assets.
For SNC, potential contract wins both internationally and in Canada “pos- ition the stock for outsized returns in the foreseeable future,” Frederic Bastien, an analyst at Raymond James Financial Inc., said Aug. 4 in a note to clients. The shares have a potential return of 27 per cent over the next 12 months, based on the average of analysts’ estimates compiled by Bloomberg. SNC has 10 buy recommendations, two holds and zero sells.
Canada made up a little more than 40 per cent of SNC’s revenue l ast year, compared with about 11 per cent for the U. S., according to data compiled by Bloomberg. Australia was the company’s second- biggest jurisdiction, accounting for 19 per cent of 2016 sales. The addition of Atkins widens the company’s geographic reach and bolsters its capabilities outside the energy industry.
The purchase, which boosts SNC’s global workforce to about 50,000, will lead to cost savings of $ 120 million by the end of next year.
About $ 30 million of that will be realized this year with the rest coming in 2018, Bruce said. Most of the benefits will probably come from grouping offices together and eliminating duplicate functions such as investor relations, as well as a “pretty small” number of job cuts, the CEO said. He didn’t provide specific figures.
“From an operational perspective there’s no real overlap in t erms of t he work that Atkins does and the work that we do,” Bruce said.
“The areas that will provide the cost synergies have more to do with real estate. We have got lots of offices in similar locations. We are looking to sell it if we own it, or find a way of optimizing on a lease basis.”