Author Topic: SNC - SNC-Lavalin Group  (Read 15802 times)

Viking

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SNC - SNC-Lavalin Group
« on: February 28, 2012, 09:22:33 PM »
Has anyone been following developments at SNC Lavalin? Appears some former executives had some illegal payments set up with Libya's former dictator's family (what a surprise!). The issues will make for some great (negative) press for the next little while.

Today SNC announced $80 million in surprises (including $35 million in questionable payments in Libya) and a delay in releasing Q4 and annual results. The stock lost 20% of its value today alone = $1.5 billion. Stock was trading today at $38 and is down almost 40% from its 52 week high. SNC was a 'top pick' of most brokerages and a bit of a 'stock darling' before todays announcement.

Is this a little like the AMEX salad oil scandal? Looks to me like the company has good corporate governance and will come clean with what has happened in Libya. Stock looks cheap and underlying business looks solid. The market is saying the issue is serious and will likely severely hurt business moving forward. Or is this an opportunity to pick up a world class company at a multi-year low price (that is experiencing some short term issues)?

Anyone been following the company and have an opinion? Can we trust management?

http://www.theglobeandmail.com/globe-investor/news-sources/?date=20120228&archive=cnw&slug=C7968
http://www.theglobeandmail.com/globe-investor/snc-lavalin-probes-mystery-payments/article2352286/
http://www.cbc.ca/news/business/story/2012/02/28/snc-lavalin-internal-probe.html?cmp=rss
« Last Edit: February 28, 2012, 09:33:36 PM by Viking »


bathtime

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Re: SNC - SNC-Lavalin Group
« Reply #1 on: February 28, 2012, 09:50:03 PM »
Thanks for posting this Viking, I don't follow the company, but looks interesting. The BNN video at this link has an analyst discussing the events:

http://www.bnn.ca/News/2012/2/28/SNC-Lavalin-stock-tumbles-after-probe.aspx

petec

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Re: SNC - SNC-Lavalin Group
« Reply #2 on: February 29, 2012, 12:36:11 AM »
A big chunk of SNC's value - maybe $20/share - lies in the 407 toll road stake.   So the E&C business lost a lot more than 20% of its value yesterday.   My questions would be: if they've delayed results will there be a big restatement, and if so what are underlying profits; and will the reputation damage hurt their ability to win contracts?

Viking

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Re: SNC - SNC-Lavalin Group
« Reply #3 on: February 29, 2012, 12:03:09 PM »
Petec, what I like about SNC is their ICI business (407ETR, AltaLink etc) which is very stable with good growth prospects (and valued at about $20 per share). They just purchased CANDU from the Canadian gov't for $15 million and will use nuclear as a new growth lever. This leaves their massive engineering business in the rest of the world (including China and Russia) where they have $9.4 billion in backorders (not including Libya). It looks to me that they have largely exited from Libya over the past year which from a business perspective means it is old news, especially when looking at the Q4 write offs announced yesterday. The key will be if they can get a lid on this thing in the next 4 weeks with no more big surprises coming out of the woodwork; this is what has the market spooked so much.

The issue right now is lack of information. What is clear is SNC was riding the Gaddafi horse in Libya for years. With Gaddafi gone I would expect they are toast in Libya. In their Q3 conference call the CEO talks about returning to Libya and collecting unpaid bills. Really? I am hoping he was being politically correct. I would be VERY surprised if they did a stitch of work in Libya moving forward given the hatred towards Gaddafi in Libya and SNC's close ties to the dictator. And perhaps what we are seeing at SNC is a company simply turning the page on a now not so good business relationship (hence a writedown of $22 million presumably for uncollected accounts). SNC has been moving on from Libya for the past year. 

It also looks to me like there is a second story here: a couple of executives used their position at SNC to fund some things that the company would not support if more widely understood (the $35 million issue). It looks to me that Aissa (former exec at SNC) had a personal relationship with Gadaffi's son and was determined to get him out of Libya. What was done by SNC and what was done by Aissa while working at SNC (but not sanctioned by SNC) should get clarified in the coming weeks. The fact that two executives were let go gives me some confidence that SNC did the right thing once they understood what was going on. SNC also looks to be doing the right thing at present.

Fortunately Libya is a very small part of SNC today. The risk is more (big) bad news comes out. The opportunity is if no more (big) bad news comes out. I doubled down today as I like the risk/reward trade off at current prices.

http://news.nationalpost.com/2012/02/11/saadi-gaddafi-snc-lavalin/

prunes

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Re: SNC - SNC-Lavalin Group
« Reply #4 on: June 15, 2012, 03:34:19 PM »
Any updates on this?

fjm222

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Re: SNC - SNC-Lavalin Group
« Reply #5 on: March 06, 2015, 01:17:42 PM »
Has anyone else been following this story? There is a lot of hair on the situation but the price has come down significantly. End markets are eroding, they are under criminal investigation and management's actions have not been confidence inspiring. I question management mainly because their message changed a month after their investor day. At the investor day in October they presented seemingly healthy end markets and then quickly came out with a restructuring plan in November. After the restructuring plan they continued to talk confidently about having a handle on the business and then announced core E&C guidance yesterday that illustrates that the historic E&C business (ex Kentz- their recent oil and gas acquisition) will not make any money this year.

If you are still reading after all that negativity, you likely know that they own some valuable hard assets and have a great deal of cash on their balance sheet. The 407 is a crown jewel asset that continues to grow dividends and is highly sought after, especially in this low rate environment. Is their hard asset value and cash which I estimate to be ~$28/ share enough of a backstop to wade into this situation? In a year that looks likely to be quite bad for their business management is guiding for E&C eps of 1.30-1.60 /share. Is 6x earnings enough of a discount? I believe that the business has the ability to earn in excess of $2.50 in a more normalized environment and E&C peers trade around 12x (give or take depending on mix and quality). That earnings number could be much larger if mining companies are able to raise capital and greenfield developments begin to be discussed.

Construction is not a good business but engineering and concession assets are. Anyone have thoughts on when the price provides a margin of safety that is large enough to justify the apparent risks? Any thoughts on risk factors that could make this uninvestable?

Every asset has a price- what's SNC's?

jason

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Re: SNC - SNC-Lavalin Group
« Reply #6 on: March 06, 2015, 01:30:02 PM »
I was following SNC for a long time feeling there was a huge overreaction from the market for all their legal troubles.  In the end I couldn't bring myself to execute as I just don't feel management is trustworthy.


Cardboard

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Re: SNC - SNC-Lavalin Group
« Reply #7 on: March 06, 2015, 05:02:00 PM »
What is a good P/E for an engineering company? 14 or 15 times? There are some comparables such as Stantec and Aecon.

If you multiply your earnings estimate of say $1.50 by 15 times you get $22.50. Add the $28 in value for the 407 and cash and you end up with $50.50. So that is a gain of 36% from current price.

If business gets better and you use the 12 multiple on $2.50 you get $30. Now, the gain from current price is 57%.

That is not a bad return, but not out of this world. IMO, the stock becomes attractive after an activist shows up and/or if the 407 is sold. Then you could open the door for big buybacks and growing the core business and possibly end up with a multiple bagger.

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Liberty

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Re: SNC - SNC-Lavalin Group
« Reply #8 on: March 06, 2015, 07:36:05 PM »
2 caveats first: 1) I don't know the specifics of this company and 2) you probably already know what I'm about to say, but I want to say it in case a newbie investor is reading this and only looking at the numbers.

What sometimes looks like a big discount to IV can actually be quite an efficient price, because bad management can have a large negative IV. The value that is there can be destroyed, or it can be diverted away from shareholders. If you can't trust management, most of the rest is on very shaky ground.
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Dazel

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Re: SNC - SNC-Lavalin Group
« Reply #9 on: June 03, 2015, 06:41:48 AM »


SNC is a steal...i would be very surprised if Mr. Buffett is not kicking their tires. do your homework on the 407 it's worth $3 billion plus as it is one of the great global investments...a bribe in Libya really? Do you think the Canadian government would jeopardize the best paying jobs and tax revenue of Canadian giant around since 1911? they will pay a fine.

Dazel