WSP Global climbs to top of engineering heap

Plummeting oil prices and a weak domestic economy are putting the squeeze on investors in Canadian engineering and construction giants such as SNC-Lavalin Group Inc. and Aecon Group Inc. this year, but those with a stake in rival WSP Global Inc. aren’t feeling the same pinch.

Shares in the Montreal-based company formerly known as Genivar Inc. had climbed more than 30 per cent in 2015 as of Thursday morning and, in stark contrast to competitors, continue to flirt with a record following another stellar quarter of earnings results released on Wednesday.

“Investors are rightfully skittish (about) having exposure to Canada,” said Maxim Sytchev, analyst at Dundee Capital Markets. “(WSP) is the name to own in this uncertain macro environment.”

WSP said diluted earnings for its second quarter were $45.8 million or 51 cents per share, compared with $26.3 million (43 cents) in the same quarter a year ago.

The strong bottom line, which topped analyst estimates by two cents per share, was bolstered by a 12.7-per-cent surge in organic growth across Europe, the Middle East, India and Africa, while organic growth in Canada stumbled 6.1 per cent.

Sytchev said WSP is one of the few names in the industrial space that derives most of its revenue internationally — 79 per cent — but also has very little exposure to commodities, as oil and gas and mining combined represent only about 10 per cent of its revenue.

Although the stock has run up significantly this year and easily outperformed both SNC-Lavalin, down 3.5 per cent, and Aecon, up 0.37 per cent, he expects it will maintain its momentum based on the company’s growth, consistent results and further M&A ambitions.

“WSP valuation is not cheap,” he said. “That being said, thematically speaking, buildings, transportation, environment are the areas where there is growth globally and combined, these three verticals represent 79 per cent of the company’s topline.”

As a result, Sytchev reiterated his buy rating and $48-price target on the stock and said the company’s disclosure that Pierre Shoiry, WSP’s chief executive, is likely to sell a portion of his equity stake in the company over the coming 12 months due to estate planning should not unduly affect the stock.

“We believe investors will appreciate the fact that it will not come as a surprise and also that Mr. Shoiry has not sold any shares since being at the helm of the company,” he said.

Most other analysts are equally bullish on WSP’s prospects with nine of the 13 who cover the company rating it a buy or outperform, with an average share price target of $47.88, representing upside near eight per cent.

Benoit Poirier, analyst at Desjardins Securities, said prior to Wednesday’s results that WSP is one of his two favourite names alongside SNC-Lavalin.

“We expect WSP to outperform some of its peers given its low exposure to oil & gas,” he said in a note.

“We also believe that concerns about the potential impact from a weaker eurozone, underscored by the situation in Greece, are overstated given WSP derives only about three per cent of its revenue from the region.”