Oil, infrastructure spending fuel construction planning
‘Number of great prospects, says SNC-Lavalin chief
OTTAWA • The chief executive of SNC-Lavalin Group Inc. said Canada is rife with new opportunities for construction firms, as companies continue to lock in major new project orders and as Ottawa gradually rolls out its massive infrastructure spending program.
“There’s a number of great prospects in Canada,” SNC-Lavalin chief Neil Bruce said Thursday.
“We really do believe that from a business development and ultimately from a backlog perspective, we see this year as probably about the best year we’ve has since I joined.”
Bruce, who became CEO of the company in October 2015, said the Trillium light-rail line in Ottawa, the Gordie Howe bridge in southern Ontario, and a handful of potential oilsands expansion projects could provide significant cushion for the company as it continues to integrate the $3.6-billion acquisition of British engineering firm WS Atkins announced last year.
Shares of Montreal-based SNCLavalin slid more than four per cent Thursday following the company’s results, in which revenues slumped to $2.4 billion, down from $2.68 billion, mostly because of slower activity in its oil and gas division. Adjusted net income grew 47 per cent to $89.5 million over the quarter.
Still, SNC-Lavalin and many of its peers are still anticipating a major uptick in new project bids in 2019 and 2020.
“There’s a lot of work in the pipeline for these companies,” said Devin Dodge, analyst at BMO Capital Markets.
The growth in new projects is at least partly result of Ottawa’s gradual rollout of its infrastructure spending program, analysts said, as well as the red-hot U.S. economy and a rebound in oil prices, which has spurred slightly higher spending.
That growth will help infill a persistent dearth of new project bids in Canada, which has been flat over the past few years after several major projects reached completion.
“It’s a year of transitioning,” Dodge said.
But analysts were quick to point out that infrastructure spending is only partly responsible for the expected growth in backlogs. Ottawa has faced criticism over the past few years because of longstanding delays in its $186.7-billion infrastructure program, announced in 2016.
The Liberal government campaigned on running annual deficits, partly to fuel spending on infrastructure aimed at stimulating the economy.
But Ottawa has met major delays in getting the money allocated toward specific projects, forcing the government to re-profile billions worth of spending to future years, and setting back its ambitious 12-year spending plan.
“We have a bit of an infrastructure deficit, so some of this is like a catch-up,” Dodge said.
The anticipation of new projects comes as Canadian construction names have been bulking up on new orders, both for larger and smaller-scale developments.
SNC and Toronto-based Aecon Group Inc. in February both won contracts to build Montreal’s $6.3-billion Réseau Express Métropolitain, the city’s massive light rail system planned for completion in 2021. It is the city’s largest infrastructure development in 50 years.
The contracts should provide plenty of cushion for the firms as they bid on future projects, according to Canaccord Genuity analyst Yuri Lynk.
“Those two companies can now be much more selective with what they book going forward, because they certainly don’t need to chase work,” he said.
Aecon and SNC-Lavalin are also shortlisted for the $4.8-billion Gordie Howe bridge project, as part of competing consortia. The winners are expected to be announced next month.
Smaller firms have also secured new projects in recent months. Stuart Olson Inc. announced earlier this week $125 million in new contracts on a major highway and agricultural facility in Western Canada, after announcing in February $120 million in new contracts to build a seniors home and a 30-story student residency in southern Ontario.
“The backlogs on the infrastructure side are happening as we speak,” said Maxim Sytchev, analyst at National Bank Financial.
Construction firms have also been bolstered by rising oil prices, analysts said, which have led to a gradual rise in oilpatch activity.
Acheson, Ala.-based North American Construction Group Ltd. posted “blowout” quarterly earnings, Sytchev said, including an 11 per cent rise in net income year-over-year and a 23.6 per cent rise in revenues.
The company attributed the growth to expansions at the Kearl oilsands mine and the Highland Valley copper mine, located in central B.C.
Concord, Ont.-based Toromont Industries Ltd. last month posted a 14 per cent boost in net earnings, partly because of increased revenues from its purchase of equipment supplier Hewitt Equipment Ltd. last year.
Bird Construction Inc., Stantec and WSP Global Inc. will release quarterly results next week.