Two Quebec giants on starkly different paths

SNC-Lavalin struggles as WSP share price rises

MONTREAL• Quebec’ s two largest engineering firms find themselves in very different places in early 2019, as one fights to retain a toehold in a crucial Middle Eastern market while the other grows by leaps and bounds.

SNC-Lavalin Group Inc. saw its stock tumble more than 27 per cent on Monday after it said that ongoing diplomatic tensions between Canada and Saudi Arabia were hurting its business, on top of problems with a mining project and an arbitration loss in Australia.

WSP Global Inc., on the other hand, unveiled a sunny strategic plan Wednesday that forecasts double-digit revenue growth through 2021, when it expects to rake in up to $9 billion.

The forecast boosted WSP’s share price 4.76 per cent to close at $67.51 in Toronto trading.

Once a boutique firm, the 60-year-old company has swelled to 48,000 employees from 17,000 in 2014, and aims to exceed SNC with 65,000 workers in the next three years.

Beefed up by acquisitions of companies such as New York-based infrastructure firm Parsons Brinckerhoff — and 11 acquisitions in 2017 alone — WSP’s expansion plans won’t come at the cost of excessive leverage, RBC Dominion Securities analyst Derek Spronck says.

Its market capitalization is now bigger than its rival, whose offices sit down the street on Montreal’s René Lévesque Boulevard.

As of Wednesday, WSP sported a value of about $7.08 billion versus SNC’s $6.49 billion on the Toronto Stock Exchange.

While both companies have seen their reputations tainted by corruption, particularly in Quebec, SNC has a bigger cloud over its head.

Its shares fell in October after the company revealed the federal government won’t grant SNC an out-ofcourt settlement over foreign bribery allegations linked to the regime of former Libyan dictator Moammar Gadhafi.

In 2013, a governmentmandated commission looking into corruption in the Quebec construction industry heard that both WSP — then known as Genivar Inc. — and SNC-Lavalin were part of a bid-rigging scheme for awarding public contracts in Montreal in the 2000s.

While SNC operates in construction as well as engineering, WSP is a pureplay engineering design firm, which leaves it less vulnerable to the cost overruns and fixed-price contracts that can plague world of builders, some experts say.

“SNC was perhaps being somewhat over-optimistic on some of the projects they’ve bid on,” said Karl Moore, an associate professor at McGill University’s business school.

“WSP plays in a different game — less in construction and more in engineering — so it also has less exposure to the Saudi Arabias of the world.”

The cost overruns SNC announced Monday for an undisclosed mining project drove it to a $1.24-billion writedown on its energy business, analysts noted.

Construction-contract bidding can reap profits exponentially greater than design work, “but they need to make sure that they get it right,” Moore added.

WSP, in recent years, seized contracts for projects including India’s Chenab Bridge — on track to be the longest-running rail bridge in the world — the newly completed 67-storey, bulletshaped China Resources tower in Shenzhen Bay and a high-speed rail link between Kuala Lumpur and Singapore, slated for completion in 2026.

“In the next cycle, through our focused acquisition and organic growth strategies, we will not only see growth in our expertise in terms of head count and skill-set, but in the scope and scale of our projects, our geographic presence and of course our client base,” said chief executive Alexandre L’Heureux in a release.