Author Topic: SNC - SNC-Lavalin Group  (Read 11147 times)

Cardboard

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3081
Re: SNC - SNC-Lavalin Group
« Reply #20 on: April 05, 2019, 06:49:44 AM »
They are selling 10.01% of it for $3.25 billion with $3 billion at closing in 2 months:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aSNC-2740814&symbol=SNC&region=C

So the road as a whole is worth $32.5 billion!

Analysts were estimating $2.2 billion for the entire stake of 16.77%. They will still retain 6.76% or a value of $2.2 billion for the rest...

https://business.financialpost.com/investing/snc-lavalin-says-good-time-to-sell-a-slice-of-its-highway-407-stake

Shares now approaching 52 week low? Some kind of stops triggering strategy before analysts upgrade the stock?

Bought some shares this morning.


Cardboard

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3081
Re: SNC - SNC-Lavalin Group
« Reply #21 on: April 05, 2019, 07:10:53 AM »
Or maybe I misread the analyst thing and it was $2.2 billion for 6.76.% only. That would still validate the road value at exactly $32.5 billion per this partial sale.

If this company was in true distress, you would think that the buyer would have been able to extract better terms. However, they are getting exactly what the analysts were expecting well before any of the recent scandal thing.

Cardboard

Cigarbutt

  • Hero Member
  • *****
  • Posts: 1658
Re: SNC - SNC-Lavalin Group
« Reply #22 on: April 05, 2019, 08:11:11 AM »
Enterprise value seems stretched but there must have been a lot of institutional interest, including pension funds who need to match assets with liabilities in our low interest rate world.

In the last few months, I have come across the following two references which underline the importance of contract details (concession life, ability to grow and rise fees).
https://www.407etr.com/documents/presentations/BMO%20Capital%20Markets%20Infrastructure%20&%20Utilities%20Conference%20-%20February%208,%202018.pdf
https://smsfconnect.com/wp-content/uploads/2017/03/What-is-a-toll-road-worth-MAM-RETAIL-March-2017l.pdf

When I got interested in investing, I never thought that toll roads would reach such EV/EBITDA ratios.

Cardboard

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3081
Re: SNC - SNC-Lavalin Group
« Reply #23 on: April 16, 2019, 09:01:33 AM »
Stock forming a nice bottom, $3 billion of cash coming in within 2 months, CDPQ reducing interest rate on their debt owed by SNC from 6% to 3%, Kenney about to take-over in Alberta or a pro-business, pro-energy supporter and a nice new contract this morning:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aSNC-2744456&symbol=SNC&region=C

Cardboard


longlake95

  • Full Member
  • ***
  • Posts: 240
Re: SNC - SNC-Lavalin Group
« Reply #24 on: August 13, 2019, 01:31:29 PM »
I've started a position at 17 1/2. A little outside my "good company, good management, good price" frame, more like "mediocre company, no management, dirt cheap". I think most, if not all, the bad news is finally priced in. Not quite done my work, but i'm somewhere in the $30/share IV range. It seems Caisse is finally applying pressure to get a new board to get this ship steered away from the rocks. Selling 10% of the crown jewel 407 is not my idea of smart, but I understand the need to stabilize the balance sheet and rebuild trust with investors. At this price your getting the concession/capital business for a discount the the E&C business for nothing - and a free dollop of headline risk. I'm not in the "the backlog is worthless and melting" camp. They still maintain street cred with industry. PPP is here to stay and they are a player. I can only speak to Lavalin's work in mining, where the mine engineers still regularly use Lavalin, and don't bat an eye at the many issue's swirling around SNC - which I believe are fading. I think it's a slow grind for a while, tax loss selling this fall will likely be brutal.

I'll continue to pick away...

Maybe Bruce Flatt will buy me out...
 

mcliu

  • Hero Member
  • *****
  • Posts: 556
Re: SNC - SNC-Lavalin Group
« Reply #25 on: August 14, 2019, 06:40:22 AM »
I've started a position at 17 1/2. A little outside my "good company, good management, good price" frame, more like "mediocre company, no management, dirt cheap". I think most, if not all, the bad news is finally priced in. Not quite done my work, but i'm somewhere in the $30/share IV range. It seems Caisse is finally applying pressure to get a new board to get this ship steered away from the rocks. Selling 10% of the crown jewel 407 is not my idea of smart, but I understand the need to stabilize the balance sheet and rebuild trust with investors. At this price your getting the concession/capital business for a discount the the E&C business for nothing - and a free dollop of headline risk. I'm not in the "the backlog is worthless and melting" camp. They still maintain street cred with industry. PPP is here to stay and they are a player. I can only speak to Lavalin's work in mining, where the mine engineers still regularly use Lavalin, and don't bat an eye at the many issue's swirling around SNC - which I believe are fading. I think it's a slow grind for a while, tax loss selling this fall will likely be brutal.

I'll continue to pick away...

Maybe Bruce Flatt will buy me out...

Thanks for your thoughts. I've been looking at this as well, they have some very profitable businesses like nuclear, but I'm having trouble understanding the extent of their potential losses.

Did you get a sense of how much more losses are in their fixed-price contracts?

From their recent call, it seems like the losses that they've booked are non-cash adjustments based on revised estimates, but actual cash outflows will occur later on, so there's at least $500M to $1B to add to EV, is that the right way to think about it?

longlake95

  • Full Member
  • ***
  • Posts: 240
Re: SNC - SNC-Lavalin Group
« Reply #26 on: August 15, 2019, 07:55:50 AM »
I agree, handicapping the future here is murky. I think the cash outlays in the future will be metered and manageable. I've basically accounted for that by using an overly conservative earnings power going forward, to absorb payments going forward for botched contracts.
I don't know if that's right, but if I can buy cheap enough there is a cushion there. I think it's a positive that SNC is stepping out the lump-sum business. That will be a headwind in the short-term, but better in the long run.

The back of the envelope #'s look like:
$5.3B -  for all the capital investments ( very cautious marking of the capital biz, 407 is worth 5B alone)
$3.5B - $700 @ 5X Pretax earnings a couple of years out
-$3.5B - recourse debt + a portion of the non - recourse debt (because nobody really likes to forgive on debt...ya maybe overly cautious)

=$5.3B = $30/per share

I don't normally handicap so severely, I try to be as realistic as possible. But the headline risk and the fact that this company's dealings have rattled the PMO's office and the Canadian public, it's hard to tell if something comes out of left field to impair SNC even more. I do think SNC is an important employer in Canada and part of the PPP solution, so I believe the government ends up being soft on SNC - in typical Canadian fashion. This is really important opportunity for Caisse to step-up and take leadership and restore SNC.

This is certainly a special situation investment for me. It will be small until some smoke clears.




Cardboard

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3081
Re: SNC - SNC-Lavalin Group
« Reply #27 on: August 16, 2019, 05:58:11 AM »
I was really lucky to get out shortly after I got in or just prior to Q1 results being published for a loss of over $1/share. Something felt fishy.

I would think that by now and at that price that all bad news has been priced in. For a while it also felt uncertain if the 407 sale would close if at all? Now they have $3 billion of cash in hand.

It looks like this will take a while to restructure but, it will. I would expect layoffs and a shrinking business to end up with a better one.

So I think this could bounce from here as it is priced for bankruptcy but, until good results show up again it could take a couple years.

Cardboard