Corner of Berkshire & Fairfax Message Board

General Category => Investment Ideas => Topic started by: Viking on February 28, 2012, 09:22:33 PM

Title: SNC - SNC-Lavalin Group
Post by: Viking 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/news-sources/?date=20120228&archive=cnw&slug=C7968)
http://www.theglobeandmail.com/globe-investor/snc-lavalin-probes-mystery-payments/article2352286/ (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 (http://www.cbc.ca/news/business/story/2012/02/28/snc-lavalin-internal-probe.html?cmp=rss)
Title: Re: SNC - SNC-Lavalin Group
Post by: bathtime 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
Title: Re: SNC - SNC-Lavalin Group
Post by: petec 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?
Title: Re: SNC - SNC-Lavalin Group
Post by: Viking 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/ (http://news.nationalpost.com/2012/02/11/saadi-gaddafi-snc-lavalin/)
Title: Re: SNC - SNC-Lavalin Group
Post by: prunes on June 15, 2012, 03:34:19 PM
Any updates on this?
Title: Re: SNC - SNC-Lavalin Group
Post by: fjm222 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?
Title: Re: SNC - SNC-Lavalin Group
Post by: jason 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.

Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard 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.

Cardboard
Title: Re: SNC - SNC-Lavalin Group
Post by: Liberty 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.
Title: Re: SNC - SNC-Lavalin Group
Post by: Dazel 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
Title: Re: SNC - SNC-Lavalin Group
Post by: gurpaul88 on June 03, 2015, 07:02:18 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

Curious on what you think the company is worth.
Title: Re: SNC - SNC-Lavalin Group
Post by: Pelagic on June 03, 2015, 07:34:59 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

Good call, while not Buffett it looks like other E&C firms are kicking the tires.

http://seekingalpha.com/news/2559456-fp-buyers-targeting-snc-lavalin-with-takeover-ambitions
Title: Re: SNC - SNC-Lavalin Group
Post by: Dazel on June 03, 2015, 07:35:12 AM
SNC sold Alta link to Mr. Buffett last year for $3.1 b...I am miffed by the fact he did not buy the whole company at that time...As the 407 is exactly the kind of asset he covets...back out the 407 and other investments...and the $1b in cash...their new business additions  are in oil and gas big in saudi Arabia...they have won two major contracts in Canada in the last two months...the Champlain bridge is worth around $4b.

$12b in back log on $9b rev's for $3b market cap when you back out 407 after tax, cash-non recourse debt, and other infrastructure investments.
simple addition...i like simple addition.

Mr. Buffett should buy the whole thing. their energy and power assets investments  and ability to build manage and monetize projects fit well with mid American which they have a relationship since the Alta link deal closed..

but shareholders will make more if it is split up which is what is happening now...its a win win for shareholders.

After i posted there was an article in Financial Post that firms were circling SNC...these are apparently engineering firms...

disclaimer: i own it and am still buying...not happy with the jump here.

Dazel
Title: Re: SNC - SNC-Lavalin Group
Post by: Dazel on June 03, 2015, 09:50:05 AM
http://www.bloomberg.com/news/articles/2015-06-03/snc-rises-to-highest-since-november-on-report-of-buyout-interest?cmpid=yhoo

This article is somewhat correct and that is why Berkshire would be one of the only fits to take over SNC as he would leave the Quebec headquarters...Power Corp would be the other...its a short list. The other problem for anyone trying to steal it is that the majority owner Jarislowsky Fraser (Stephen Jarislowsky) is one of the greatest value investors of all time

http://moneyweek.com/stephen-jarislowsky-the-canadian-warren-buffett/

This is an old article...but gives you an idea of the man. He has stepped down from the helm since 2012 but make no mistake SNC-Lavalin is still Jarislowsky's baby. It's a great company that is on sale...

the best thing for shareholders is for them to continue down the path they are headed (deal with Canadian gov and sale of 407-or not it is a great asset)...a take over would undervalue what will become of SNC-Lavalin but you can be sure that Jarislowsky will not let it go cheap.

Dazel
Title: Re: SNC - SNC-Lavalin Group
Post by: LesPaul on July 06, 2015, 10:40:08 AM
Seems like this action was almost directly taken for SNC:

http://www.montrealgazette.com/business/Ottawa+softens+anticorruption+rules+companies+seeking+government+work/11191755/story.html

MONTREAL - Ottawa has softened its anti-corruption rules, reducing the penalties for companies that are seeking government work after being convicted of bribery, money laundering and other offences.

Under the new procurement rules announced Friday, companies can still be barred from government contracts for 10 years if they have been convicted of such offences in the past three years.

But that ban can be cut in half if the company co-operates with authorities and takes remedial action.

Also, suppliers will no longer be automatically ineligible for government work because of the conduct of affiliates unless it can be demonstrated that the supplier had control over the convicted affiliate.

Canada's business lobby has been urging Ottawa to make changes to procurement rules it labelled as "draconian."

Public Works Canada says the new rules are fair, ensure due process and better align with international best practices.

SNC-Lavalin chief executive Robert Card has warned of the negative consequences for his company if the federal protocols used in awarding contracts weren't changed in light of the company's legal troubles. The company has been beefing up its compliance rules since improprieties surfaced three years ago.

The RCMP charged SNC-Lavalin (TSX:SNC) and two of its subsidiaries with one count of fraud and one of corruption last February over its dealings in Libya.

The Montreal-based company has said it will plead not guilty to the charges but is willing to pay a fine for the alleged transgressions of former employees. The case will be back in court in October.

While the legal case remains outstanding, SNC-Lavalin has been part of various consortia that have won or been selected as preferred bidders for several federal contracts.

Analyst Maxim Sytchev of Dundee Capital Markets says SNC-Lavalin isn't "entirely out of the legal woods," but the shorter debarment times and reinstatement opportunities is positive for the company.
Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard on October 01, 2015, 08:46:18 PM
http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aSNC-2314781&symbol=SNC&region=C

Is the $600 million price tag a negotiated amount or a put amount that was agreed at the signature of the joint venture between partners years ago?

Cardboard
Title: Re: SNC - SNC-Lavalin Group
Post by: Studesy on January 28, 2019, 11:49:00 AM
Last year an announcement was released by SNC stating they may sell 6.7% of their hwy 407 stake (out of their 16% holding).  Analysts pegged a $2+bil valuation on this 6.7% stake. 

At a $2b valuation, this implies a $5b valuation on their entire 407 stake.
At a $2.5b valuation, this implies a $6.2b valuation on entire stake.

SNC market cap today= $6.1b

After today's announcement and subsequent price decline, it seems the E&C division is priced for death.   
Title: Re: SNC - SNC-Lavalin Group
Post by: rb on January 28, 2019, 12:52:14 PM
I like 407 a lot. But that valuation is a bit out to lunch.
Title: Re: SNC - SNC-Lavalin Group
Post by: Studesy on January 28, 2019, 06:47:25 PM
I like 407 a lot. But that valuation is a bit out to lunch.

What do you think it is worth?


This article is from 2017. Seems $4.5 b +  was the concensus then.
https://business.financialpost.com/investing/highway-407-could-be-worth-up-to-45b-in-a-decade-and-thats-good-news-for-snc-lavalin

Cheers
Title: Re: SNC - SNC-Lavalin Group
Post by: rb on January 28, 2019, 08:35:34 PM
I don't concern myself much with the consensus. I prefer to do my own work.

In 2017 their free cash was lets say maybe $567 million. The road is probably worth around 24 times that. So $13.6 billion. SNC I think owns 16.7% of it. So SNC's share is $2.27 billion. I think 2018 free cash should decline because I think their tax rate will go up. Maybe due to my nature I'm a little stingy, but 13.6 is a long way from 45.

Furthermore, while I do like 407, some warts are starting to pop up. Most of their growth was price, not traffic. Very profitable growth. But they're starting to bump into the limits of that. So there won't be as much price taking in the future - a combination of government and technology. I say this as someone who's a frequent user and who's family is a frequent user.

I should add that I did own SNC in the past. Bought it somewhere below the current price during the bribery scandal and I did very well. But back then it was the 407 stake + Altalink + the E&C and other. Now they've sold Altalink and did an acquisition with the money. An acquisition on which they're taking a huge write-off now. Plus the bribery thing still lingers on. Without Alatalink I don't think the 407 stake is enough cushion against management stupidity. If you like 407 at this point I'd suggest taking a good look at Ferrovial. They're a much more competent bunch than the SNC guys.
Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard 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.
Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard 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
Title: Re: SNC - SNC-Lavalin Group
Post by: Cigarbutt 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.
Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard 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

Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 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...
 
Title: Re: SNC - SNC-Lavalin Group
Post by: mcliu 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?
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 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.



Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard 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
Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on August 27, 2019, 01:17:33 AM
Dear community,
Some of you might know me by my real name, Brian Langis, and this is my first CFB post. This is also a follow up on a presentation I gave at the 2019 Toronto Value Symposium (at the Fairfax AGM) in April. When I pitched SNC-Lavalin Group (SNC.to) it was trading at $34, down from its all-time high of $61. Then the stock fell to ~$25 on bad news and it’s now trading at $16.30 on more bad news.  Nobody wants to see a stock falls, especially one that I pitched to a group of smart investors. I believe I should address the current situation.

I posted an update of SNC on Seeking Alpha. Here's the link: https://seekingalpha.com/article/4275981-snc-lavalin-buy-highway-get-e-and-c-cheap

Here are some of the key points since the publication.

Where are we?
SNC is now trading at $16.30, the lowest in 15+ years and down 73% from its high. Despite the recurring issues with the Infrastructure & Construction segment, I still believe SNC is not a value trap. I believe shareholders will be rewarded in the long run for the risk they take. Keep in mind, as mentioned in the article, this is not an easy investment. It will take time to turnaround the ship.

So what’s happened?
SNC is in a difficult situation. Since Q3-2019, the company has been hit with massive cost-overrun in their fixed-price project.
The Company is also the subject of a political scandal in Ottawa with the Liberal party, which could have been avoided, but yet here we are.

In the article I said that I wouldn’t be surprised that the new CEO takes the quarter as an opportunity to ditch guidance and dump more bad news and that’s exactly what happened. SNC took a $1.9b impairment charge link to its oil and gas division, Kentz. They already took a $1.2b impairment charge back in February. SNC bought Kentz for $2.1b back in 2014. The CDPQ, the largest shareholder with 19.9%, publicly came out against the deterioration of SNC performance. Back in the spring the CDPQ said they will “be a rock” for SNC, I guess they are losing patience like everyone else.

SNC is facing many headwinds, operationally, financially, politically, reputationally…let’s quickly address them:

1) SNC has been having operational issues. SNC some good assets and bad assets. The recent restructure announced will have SNC focus on its strong points. SNC is still in business. They are still winning contracts.  SNC is walking away from Turnkey lump sump projects, the key source of its problems. Exit: O&G, mining, and construction which are its least profitable activities. They will focus on design, nuclear, engineering services “EDPM”.  They will be less risky and more cash-flow predictable. More details on the new strategy is expected in the fall. The future SNC might look like more of a WSP Global or Stantec.

2) Finance: SNC took on a lot of debt for its WS Atkins acquisition of $3.6b in 2017. Despite paying a big price for Atkins, it’s one of the strong points of SNC today. To deal with the debt SNC sold part of their private highway, cut the dividend, and is engaged on a cost cutting program. SNC also has $13.87 (post-H407 sale) of net assets in their Capital Investment Portfolio (CIP).

3) Politics: Unfortunately SNC is in the middle of a political scandal for the Trudeau’s Liberal government.  SNC was also a victim of a diplomatic spat between Saudi Arabia and Canada. There’s not much in SNC’s control at the moment. Hopefully after the election the government will finally find a solution to SNC’s legal problems.

4) Reputation: SNC didn’t murder anybody but you would think they did. Their reputation is not good. It’s affecting employee morale and departures. The public perception of the company is toxic. SNC is managing a PR crisis. SNC, a 100+ year old company, has its brand; a once valued intangible asset is now in the garbage bin. You can change a reputation. Merck’s Vioxx is responsible for    the death of 38,000 people and the company is still around. With SNC it will take time. I don’t expect anything before the Canadian Federal election in October. Plus they have to Libya bribery court case they have to deal with. It will take a lot of time, a string of good news/quarters, and communications to deal its reputation.

So what is SNC doing?
The new CEO as a clear mandate: Turn the company around. He said he wants to “de-risk” the company. So he decided to drop fixed-cost projects and constructions (read above). They will focus on high margin areas like consulting, EDPM…They might sell off divisions like Resources which is more cyclical.

However, SNC still has to honor their previous contracts and this is very where the market is very sour on. Instead of seeing the backlog has a positive, it’s considered a liability. The market is saying: “We expect more cost-overrun from your construction projects, this will put SNC on the brink.” However, out of the $3.4b in infrastructure & construction backlog, $2.5b is considered “low-risk”. It’s not for the faint of the heart and potential surprises are still possible. A 30% cost overrun on $1b is a $300m lost…

Other thoughts
The intrinsic value of SNC is much higher, but investors don’t want to hear any of that. There’s too much volatility linked to fixed-cost contracts even though SNC is leaving the segment. Also most of the proceeds from the Highway sale will go to de-leveraging. I don’t expect much to go to share buybacks, if any, since the situation is worse than expected. The money should be used to stabilized the company. But imagine the buyback at these prices... I expect clarification this fall with where management is going from here.

The core thesis of my investment thesis is still relevant. SNC is a high-conviction contrarian investment opportunity. It’s definitely not for everyone. The sentiment around the stock is extremely negative, which is reflected in the share price.

I hope this update helps. I don't know how active I will be on the forum but some of you have my personal email address and number. You can follow me on Twitter: https://twitter.com/absolut_brian or on my blog where I post occassionaly about investing and other randomness. http://brianlangis.com/

Thanks,

Brian
Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard on August 27, 2019, 05:22:08 AM
Well Brian, I certainly hope that you will continue posting as this is a great post!

There is already a small thread on SNC but, there is little discussion going on. As I mentioned, I got in at around $34 and luckily got out at a small loss just before Q1 was released as something didn't feel right.

Then there was really bad results, serious doubt about 407 sale closing, CEO out, dividend cut, Caisse unhappy ,etc. Finally, the 407 deal closed or a major cash inflow and stock still heading down...

I think this will turnaround and be a smaller more efficient engineering company which should trade at 15+ times earnings like Stantec and others. It will take time.

Moreover right now, we are in a world trying to price in the next 3 recessions, so anything seen as cyclical or in trouble is avoided like plague. Where does this stop or this never ending vicious fear cycle is a mystery?

Cardboard
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on August 27, 2019, 06:33:58 AM
Hi Brian,

Great post. Thanks for your analysis. As Card mentioned there is an SNC thread, maybe you could repost there and continue to check-in once and a while. Im a new owner of SNC (August) and agree this company has a lot of hair on it - but there is value there, perhaps significant value. The political cloud hanging over SNC is a benefit to long term buyers buying now. I think in 3 years nobody in Ottawa or the general public remembers the SNC issues.

longlake
Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on August 27, 2019, 11:23:54 AM
Longlake95 and Cardboard,
Thank you for the replies.

I didn't see the previous SNC thread. I even searched for it. Link?
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on August 27, 2019, 03:10:50 PM
http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/snc-lavalin/msg379033/#msg379033
Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on August 28, 2019, 11:15:06 AM
SNC won a "major" engineering contract. Contract amount is not disclosed but the contract sounds significant. This is part of SNC's strategy to increase their service division. This is a multi-year contract reimbursable contract, the future of SNC. This also displays Atkins' competences. The market doesn't care. Stock down anyway to $15.80.

SNC-Lavalin appointed on major PMO contract on Australia's largest rail programme
https://web.tmxmoney.com/article.php?newsid=8236459111169865&qm_symbol=SNC
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on August 28, 2019, 01:11:05 PM
https://www.newswire.ca/news-releases/snc-lavalin-appointed-on-major-pmo-contract-on-australia-s-largest-rail-programme-888761233.html
Title: Re: SNC - SNC-Lavalin Group
Post by: Spekulatius on August 28, 2019, 03:04:20 PM
Fixed price contracts for large construction projects are a disaster for the industry, just look at FLR.
Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard on August 30, 2019, 02:22:25 PM
I am back in with a smallish position. I was waiting for a bottom and think that we have it now along with lots of value to support.

Reacted positively to good news today or contract extension while equity market was down.

Cardboard
Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on September 06, 2019, 09:18:17 AM
We should expect an update and a "plan" from the new CEO this fall. Hopefully it would clarify a lot of uncertainties and give investors a sense of direction. When he got the job in June he said he would take 60 days to meet with key shareholders.
 
I hope we get clarity on:
* How much debt has been paid back? How much leverage is left?
* What's the story with the share buybacks? Sounds attractive at these prices but is there money enough money for that?
* Can we get a the picture of what's going with the Infrastructure & Construction segment? This has been a major source of problems/losses. And how much of it in that's left in the backlog can be "de-risk"?
* An update on the Resource segment. Can anything be sold?

As for their legal issues, I don't expect anything new. The elections are in October, so their file is a definite "don't-touch". They are expected to face trial an anything can happen.
Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard on September 10, 2019, 11:28:22 AM
Train leaving the station?

CIBC resumed coverage today with an outperform-speculative rating and target dropped from $49 to $25. Seems to be the only explanation for the pop other than a decently good looking bottom on the chart.
Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard on September 11, 2019, 05:54:21 AM
Can't find an english article on this but, Jarislowsky after telling people that this would be about worthless with a sale of 407 (wanted a shareholder vote) has now bought back over 10% of SNC shares: scare the little guy then scoop shares at bargain prices in August...

Likely helps to explain the increase of yesterday as word got out on the Street.

https://www.lapresse.ca/affaires/201909/10/01-5240687-jarislowsky-revient-en-force-dans-le-titre-de-snc-lavalin.php

With 47% now held by 3 large institutions with deep pockets and all looking bad since they bought at much higher prices except for Jarislowski latest average down. 2 making noise: Caisse and Jarislowski. I am thinking that a privatization may not be far behind. It would be the best way for these guys to restructure the whole thing and make a really good return.

Cardboard
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on September 11, 2019, 06:16:09 AM
SNC would be a great fit for BAM. They must use a ton of engineering services, especially in BIP not to mention BAM's connections around the world. He probably loves the concession side of the business too. This seems right up Flatt's alley...unloved asset....long runway of growth/business....no one else competing to buy SNC....and a distressed price.

LL
Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard on September 11, 2019, 07:24:27 AM
Ferrovial/Cintra is now adding some uncertainty to the 407 sale:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aSNC-2808534&symbol=SNC&region=C

What is curious is that this was known before the open yet, the stock still rallied almost to $20 before pulling back?

I am also surprised that CPPIB did cut the cheque before the period to appeal had lapsed.
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on September 11, 2019, 10:51:41 AM
Add to SNC today on the news of JF buying 11%. With JF now on board, along with Caisse, I think they now  can assert enough pressure on SNC to do the right things to right the ship.

LL
Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on September 11, 2019, 11:45:54 AM
This is definitely a vote of confidence. Jarislowsky Fraser's firm now owns 10% of SNC. It's also notable that he's a former board member and used to own over 10% in the past before selling and buying again.
https://business.financialpost.com/pmn/business-pmn/canadas-jarislowsky-fraser-raises-stake-in-snc-lavalin-shares-rise
Title: Re: SNC - SNC-Lavalin Group
Post by: Cardboard on September 13, 2019, 07:44:21 AM
Taking off big time! This is really good as this will attract funds + technical folks.

I am probably going to trim in the $24-26 range as then it becomes more of a longer term turnaround.

Cardboard
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on September 13, 2019, 10:12:31 AM
It's a 4% position for me - I'm hanging on till we see a few quarter roll by. Ya, I think it's partly a relief rally and partly coat-tailing off of JF. Either way its good. Now we just need Bruce Flatt to buy this thing, cancel the 407 sale, keep the crown jewel, and sink capital to stabilize the balance sheet. I do worry about a convent breach if earning don't march higher soon. However, with 48% or so of the stock in strong hands I think that worry has diminished some as they will force the right levers to be pulled.

Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on September 17, 2019, 10:18:12 AM
SNC's legal case returns to court on September 20. It's trial by judge alone. SNC plead not guilt and said it intended to vigorously challenge the charges. Maybe, I'm saying this with the smallest probabilities, that the judge will throw out the whole thing.

Longlake:

Jarislowky's buy sends a big vote of confidence for SNC as the stock as past the $20 mark.
[/list]
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on October 31, 2019, 06:59:24 AM
Nice Q3, even ex 407 sale. Nice to see resource backlog rolling off and what remains is mostly light rail projects. It's time to carve off resource E&C, and just provide engineering services...

https://www.snclavalin.com/en/media/press-releases/2019/31-10-2019
Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on October 31, 2019, 07:30:54 AM
I guess SNC didn't celebrate Halloween today with one of their freak show horror quarter. From what we have seen in the last year, this is refreshing. The stock has responded well, up 13% this morning. Ian Campbell has been nominated as CEO. They didn't delever has much as I expected but now maintain some cash, close to a $1b. They will need it for future infrastructure projects in the backlog and potentiel cost overruns. Now they need to execute.
Title: Re: SNC - SNC-Lavalin Group
Post by: no_free_lunch on December 04, 2019, 05:52:23 AM
I am in on this one.

I don't have an advanced understanding of SNC but I will put out my quick thesis. The sale of a portion of 407 was for top dollar and the proceeds have allowed the company to basically clear out their long term debt.  Engineering services are doing something like a billion in operating cash flow a year.  Despite the scandal engineering services has a huge backlog.  Earnings should be well over $2 per share next year and on top of that with a deleveraged balance sheet the company will eventually have opportunities to grow via acquisition. There are additional catalysts available including sale of O&G.

It is not without some risk but seems cheap and a nice alternative to the overpriced market.
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on December 04, 2019, 07:24:51 AM
Yup, thats it in a nut shell. Politics and scandal aside, their engineering services are world class. I know some mining engineers and they sub contract SNC and they don't bat an eye when hiring SNC.
I added this week at 23, after the down pressure of being kicked out of the MSCI world index. On November 26 SNC traded a whopping 11 million shares as the indexes dumped SNC. I guess markets aren't efficient after all, LOL. I think this pull back is no-brainer.

LL


Title: Re: SNC - SNC-Lavalin Group
Post by: no_free_lunch on December 04, 2019, 08:21:49 AM
I appreciate the feedback longlake.  Your comments on the other thread resulted in me investigating SNC and making the position, so thanks for that as well.

It's still a small/medium position but I am likely to increase it after I do a bit more work on it.
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on December 04, 2019, 08:31:03 AM
it's a 6% position for me. Ya, my valuation is fuzzy, the range of outcomes is higher than I'd like. But, I like the back stop of the asset value behind the concession business combined with the good probability that earnings normalize over time....it's a good set up.  I really like that JF is back in...I believe Jarislowsky was on the board for many years - he know what SNC's earnings power is.

Title: Re: SNC - SNC-Lavalin Group
Post by: wisowis on December 15, 2019, 12:17:31 PM
https://montrealgazette.com/news/local-news/snc-lavalin-jury-in-corruption-trial-finds-bebawi-guilty-on-all-counts

Quote

Former SNC-Lavalin executive vice-president Sami Bebawi has been found guilty on all counts at his fraud and corruption trial.

Superior Court Justice Guy Cournoyer refused a request by Crown prosecutor Anne-Marie Manoukian that Bebawi be held in custody until a sentencing hearing on Thursday, saying his behaviour had not raised fears of him becoming a fugitive.

Bebawi, 73, courteously shook hands with Crown prosecutors before leaving the courthouse with his defence team. He refused to comment.

Manoukian said the jury had to study a large number of documents during its more than three days of deliberations, including evidence on foreign holdings, expert testimony on forensic accounting and legal concepts involved in the charges.

“We’d like to thank the members of the jury for their devotion to this trial as well as the deliberations and the work they had to do to render justice in this complex case,” she said.

Manoukian said the Crown would reveal its sentencing request at Thursday’s hearing.

Each of the convictions carries a maximum penalty of up to 10 years for money laundering and possession of property obtained by crime and up to 14 years for fraud.

Prosecutor Richard Roy said the case has demonstrated Canadian authorities’ determination to combat international business fraud.

“This case is another example of Canada’s commitment to fighting corruption of public officials and implementing its obligations under international conventions to fight corruption in international business,” he said.

The jury had been deliberating since Thursday in the trial, which began six weeks ago at the Montreal courthouse.

Serving as the firm’s executive vice-president from 2000 to 2006, Bebawi faced five charges in all: fraud, bribing a foreign public official — former dictator Moammar Gadhafi’s son, Saadi Gadhafi — laundering the proceeds of crime, and two counts of possessing property obtained by crime.

Throughout the trial, the Crown positioned Bebawi as the man behind what it described as SNC-Lavalin’s “business model” in Libya: paying millions in kickbacks and bribes to keep obtaining lucrative contracts.

“The company adopted an unusual, unlawful and dishonest practice,”  Manoukian told jurors in her closing arguments, “by artificially inflating the prices of contracts, paying bribes and misappropriating money for personal gain.”

A forensic accountant who analyzed SNC-Lavalin’s financial statements testified the firm transferred more than $118 million to Swiss bank accounts tied to a shell company. That company had been established by Bebawi’s subordinate in Libya, Riadh Ben Aissa.

“The amounts went in and out almost on the same day,” Sophie Déry told jurors. “It was an account used only as an extra layer when distributing money.”

Of that money, the Crown argued, Bebawi pocketed nearly $30 million. The millions were transferred into his and his uncle’s bank accounts.

The money was also used to pay Saadi Gadhafi in hopes of leveraging his influence in the country. The gifts culminated with the firm agreeing to buy Gadhafi a $25-million yacht shortly after he helped it secure a multimillion-dollar contract, the trial heard.

Bebawi did not testify or present a defence in the case.

In its closing arguments, his defence counsel argued the millions Bebawi received were not the result of crimes but rather company-approved bonuses for successfully manoeuvring complicated contracts in Libya’s difficult working conditions.

The defence also argued that Saadi Gadhafi should not be considered a foreign public official  — a key component for the corruption charge  — and that the Crown had built its case on unreliable witnesses.

Bebawi was not the leading force behind the firm’s Libyan dealings, it argued, but rather a middleman of sorts between Ben Aissa and CEO Jacques Lamarre, whom the defence says Bebawi often passed decisions off to.

“Ben Aissa understood the company and Libya better than Sami Bebawi,” defence lawyer Alexandre Bien-Aimé told jurors. “He was very well connected there, not Sami Bebawi.”

Ben Aissa, the Crown’s key witness in Bebawi’s case, pleaded guilty in Switzerland to charges of corrupting a foreign public official and laundering money in connection with his role in Libya. While in detention, he signed an agreement to co-operate with Canadian authorities.

Bebawi is the only SNC-Lavalin executive to be tried in Canada on corruption charges tied to the firm’s dealings in Libya. Another executive, Stéphane Roy, had faced similar charges, but they were stayed this year because of unreasonable delays.

Bebawi had also benefited from a stay of proceedings in a separate case in which he was charged with obstructing justice.

The jurors in his corruption case were presented evidence that an undercover investigation from the RCMP revealed that, through his lawyer, Bebawi had offered Ben Aissa a $10-million bribe to change his testimony.

The charges against Bebawi and the lawyer alleged to have been involved in the bribe, Constantine Kyres, were stayed this year because of delays. They had been filed in 2014.

SNC-Lavalin Group Inc. itself is expected to head to trial on corruption charges in 2020. It’s alleged the company paid Libyan government officials nearly $48 million between 2001 and 2011.

It is that case that’s behind the so-called SNC-Lavalin affair that ensnarled Prime Minister Justin Trudeau in controversy this year.
Title: Re: SNC - SNC-Lavalin Group
Post by: no_free_lunch on December 15, 2019, 05:12:14 PM
There was talk in summer of changes to the statute that covers SNC losing federal contracts. They wanted to water it down so officials can make the sentence less lengthy. Currently they could lose federal contract access for 10 years.

I am not sure how meaningful bebawis trial is. If anything it provides some cover as at least government can point to some type of punishment.  However with a minority government I don't know how much they can really do.

The whole thing is really too bad. I can't see other countries going after their own like this. It would be like Germany banning vw from selling domestically because of the emission scandal.
Title: Re: SNC - SNC-Lavalin Group
Post by: Cigarbutt on December 16, 2019, 05:06:28 AM
There was talk in summer of changes to the statute that covers SNC losing federal contracts. They wanted to water it down so officials can make the sentence less lengthy. Currently they could lose federal contract access for 10 years.

I am not sure how meaningful bebawis trial is. If anything it provides some cover as at least government can point to some type of punishment.  However with a minority government I don't know how much they can really do.

The whole thing is really too bad. I can't see other countries going after their own like this. It would be like Germany banning vw from selling domestically because of the emission scandal.
I've followed SNC for a long time. Their record, at some point, was very impressive (almost too good to be true) and it is too bad that such a record, at some point, included inputs that crossed lines that shouldn't have been crossed. Opinion: What happened with the superhospital contract is simply disgusting and evidence eventually showed (even if most of it was not disclosed due to early pleas) that the rot was global and profound. Corporate culture slipped sometimes in the years 2000s and eventually reached the point of no return.

The Bebawi case implies massive transfers of $. It is hard to imagine how the top guns and the Board were not aware of the dealings. It went further than 'wilful blindness'. The negative aspect of recent legal outcomes is that it shows how deeply the poor culture impregnated the crown jewel. The positive aspect is that those events happened a while back, public admonishments help to forgive and forget and recognition of cultural change comes with a lag.

Keeping access to contracts will be key and is achievable but the cost of redemption may be very high. It seems that they will come around but expensive fines should be expected. Siemens went through this in the 2000's. They also were threatened with loss of access to important sources of contracts. They used a different strategy than SNC and reacted to the issue more head-on which was more painful but which allowed to get out of the mess more decisively. 'Corruption' in construction contracts, especially in certain jurisdictions, is always present but needs to be contained. For the Siemens case, it is interesting to note that, up until 2002, the German tax code had a separate line item for cost of doing business where companies could claim costs related to bribing foreign officials.

https://www.npr.org/templates/story/story.php?storyId=98317332
https://www.theguardian.com/sustainable-business/recovering-business-trust-siemens
Title: Re: SNC - SNC-Lavalin Group
Post by: finetrader on December 16, 2019, 07:35:43 AM
I believe SNC will eventually get a DPA. Will cost them about 100M$CAD.
It it just the right thing to do for most stakeholders.

If it happens, the stock will fly.
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on December 16, 2019, 07:41:20 AM
Agreed - the government HAS to fine them for optics...but It will be very minor and it won't move the needle. SNC is an important business in Canada's PPP solution and a world class operator at the engineering level - a little less stellar at the C suite and board level. Its not in the governments best interest to snuff out SNC. People will love SNC again when its back in the 50's in a few years. LOL.
Title: Re: SNC - SNC-Lavalin Group
Post by: no_free_lunch on December 16, 2019, 10:39:36 AM
So I am really hoping you guys are right, and that there is just a fine.  However, technically that isn't an option currently unless they can somehow get a DPA or whatever the term is and that has been rejected.  Now that it is in trial things are a lot messier.  They actually might need to change statutes to impact the outcome and to do they will need to get one of the other parties to agree to the terms.  I don't know, maybe they can just slip it in with some other bill, they have their ways.  To me, this is the most critical thing to watch for.  As soon as you see legislation on amendments to that act, this becomes a strong buy for me.
Title: Re: SNC - SNC-Lavalin Group
Post by: finetrader on December 16, 2019, 11:00:58 AM
DPA is still in the cards

https://globalnews.ca/news/5013229/david-lametti-snc-lavalin-affair-jody-wilson-raybould/
Title: Re: SNC - SNC-Lavalin Group
Post by: Cigarbutt on December 16, 2019, 11:43:31 AM
^"If you don't like the law, change the law, don't break it."
https://policyoptions.irpp.org/magazines/may-2019/conflicts-written-into-deferred-prosecution-agreement-regime/

I would say though that the bad apple phenomenon went to the core and actors have not been exactly forthcoming. These circumstances would tend to go against a simple slap on the fingers.
Title: Re: SNC - SNC-Lavalin Group
Post by: finetrader on December 16, 2019, 12:22:21 PM
Quote
https://policyoptions.irpp.org/magazines/may-2019/conflicts-written-into-deferred-prosecution-agreement-regime/

long story short: former AG used bad judgment. this needs to be rectified
Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on December 18, 2019, 07:25:17 AM
Trading halted this morning. My guess is that it's linked to the court case but nothing was announced.  SNC is returning to court for a pre-trial hearing in a Montreal court on several corruption-related charges.

I believe the company is on the right path. The decision earlier this year to withdraw from fixed-priced contracts was a good one. SNC is focusing on engineering services, which have a lower risk and higher margin profile that comes with more predictable cash flows.
An example of the "new" SNC is this: a $10 billion, 10-year nuclear services contract awarded by the U.S. Department of Energy to a joint venture that includes SNC. It's a long-term contract. Engineering services is really the direction in which they are going.

2020 will be the year where a lot of those fixed price contracts will be coming off the balance sheet. Once that backlog is executed/cleaned up, the valuation profile should look like a WSP or Stantec, or Jacobs, which trades at higher metrics.

Of course there are still risks associated to the fixed-price contracts and legal issues. But again these issues and potential losses are already reflected in the stock price. So you are not paying your ball eyes out.

One massive source of the Lump-sum-turn-key problems was the Chilean Codelco contract, which is now completed and in the past. As of Q3-2019, 84% of the $3.2b LSTK projects are light train related, which is one of SNC's strenght (or less risky).

As for the corruption legal case, we are talking about another 3-4 years unless some action is taken before (message to the government to get their act together and do the right thing and move on. Are we really to drag this for another couple years? There's no way the Liberals want the word SNC to come back in the next election.)
Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on December 18, 2019, 07:54:57 AM
Headline: SNC-Lavalin reaches agreement to plead guilty to charges of corruption in Libya

This was fast. A division of SNC-Lavalin Group Inc. will plead guilty to fraud charges related to work the company did in Libya. The crown has suggested a $280m fine paid over 5 years and a 3 year probation for SNC-Construction.

More to come...
Title: Re: SNC - SNC-Lavalin Group
Post by: no_free_lunch on December 18, 2019, 08:40:43 AM
Thanks absolutbrian,

Quote
The prosecution and defence are both recommending a $280-million fine to be paid over five years, and that SNC-Lavalin Construction, the division in question, be placed on probation for three years.

https://www.cbc.ca/news/canada/montreal/snc-lavalin-trading-court-libya-charges-1.5400542

This sounds really positive to me.  This shouldn't bankrupt the company and the fine is actually lower than I expected.
Title: Re: SNC - SNC-Lavalin Group
Post by: finetrader on December 18, 2019, 09:49:19 AM
SNC stock resumed trading

market is lovin it
Title: Re: SNC - SNC-Lavalin Group
Post by: no_free_lunch on December 18, 2019, 10:01:13 AM
This press release provides some more details on what the probation means.  You can make your own interpretation but from my perspective, as an investor, it critically means they are not going to be banned from federal contracts.  This seems to have been the best case scenario.  The fact that they were able to get the settlement done so quickly is excellent.

As a shareholder I'm lovin it.  As a canadian citizen, not so much.

Quote
SNC-Lavalin Group Inc. will comply with the probation order for the three-year period. Accordingly, SNC-Lavalin Group Inc. will engage an independent monitor who will provide initial and annual reports, executive summaries of which will be posted on the company's website, and will make any changes to its compliance and ethics programs that are identified by the independent monitor and are required. SNC-Lavalin group is already subject to monitoring by Public Services and Procurement Canada and the World Bank, and has put in place a robust ethics and compliance program that meets the highest international standards.

On behalf of the Board of Directors, Kevin G. Lynch , Chairman said, "We are pleased to settle these legacy issues and remove these legal uncertainties overhanging the Company. We feel this settlement is fair, and we deeply regret this past behaviour which was contrary to our values and ethical standards. The company has changed a great deal, embraced a world-class integrity regime and culture, and going forward we have renewed confidence about the Company's future."

Ian L. Edwards , President and Chief Executive Officer, SNC-Lavalin commented, "This is a game-changer for the Company and finally allows us to put this issue behind us. I apologize for this past misconduct and welcome the opportunity to move forward. We are beginning an exciting new chapter that is focused on our future growth and further de-risking our business. I want to thank all of our stakeholders, and especially our employees, for their continued dedication and support."

https://finance.yahoo.com/news/snc-lavalin-group-settles-federal-164400647.html
Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on December 18, 2019, 11:00:14 AM
The fine of $280 million paid over 5 years is much lower than the $500m anticipated.

From a valuation standpoint, the stock currently implies that SNCL Engineering Services is trading at an EV/LTM EBITDA of 9x (assuming the worst-case scenario for the completion of LSTK projects and future settlement of C$280m). This is still well below the average for engineering services peers of 13.3x.
Title: Re: SNC - SNC-Lavalin Group
Post by: Cigarbutt on December 19, 2019, 09:56:52 AM
So SNC negotiated a very good deal.
280M is at the lower end of the expected range and is to be paid overtime..
They were able to obtain this by pleading guilty to a reduced count, by promising to behave during the probation and after having shown that the turnaround had been started. They are now very likely to maintain access to national bidding, which was an existential threat. Apparently, from court documents, a 705M fine had been contemplated and, effectively, the 280M will include forfeiture from Libya profits estimated at 150M.
The market now reflects this new reality and the decision now to hold is based on a buy-and-hold decision grid, so it has become a different story.
https://www.theglobeandmail.com/opinion/editorials/article-snc-lavalin-got-what-it-wanted-its-still-a-win-for-the-rule-of-law/
Overall the process was messy, erratic and not terribly elegant, and many people will be left unhappy but IMO this ends up pretty much where it should have. Good luck to the longs.
Title: Re: SNC - SNC-Lavalin Group
Post by: absolutbrian on January 23, 2020, 12:30:10 PM
Interesting hirings at SNC that hints at the direction the company will take.

Louis G. Véronneau is the Chief Transformation Officer. A new post created.  Louis is a M&A expert. The read here is that SNC will look into divesting certain assets in its restructuring and redeploy the proceeds to create value. Louis was the guy at Bombardier that sold the Series C to Airbus and other assets. My assumption is the resource sector is on the block and to reinvesting the proceeds in engineering services.

There's also the newly created role of President of Infrastructure Projects and on an interim basis, to the newly created role of Executive Vice-President Infrastructure Services. I don't know anything about them except they are there to improve performance. I see this as a good sign.
Title: Re: SNC - SNC-Lavalin Group
Post by: longlake95 on January 23, 2020, 01:42:40 PM
Agreed. They seem to be moving at a good pace to re-focus the business and improve the street's view of SNC.
Title: Re: SNC - SNC-Lavalin Group
Post by: no_free_lunch on March 15, 2020, 01:34:34 PM
Any thoughts on SNC?  It is back to where it was before the court case settled.   Maybe their earnings get whacked this year but at some point, peope will go back to work and I  can see the government trying to boost the economy with infrastructure spending programs.

SNC also has a much cleaner balance sheet than in the past.  The are down to $2b in long-term debt against maybe $300m+ free cash flow.  This is down from some $3b in LT debt in the past.  If markets stay down I don't see why they couldn't gear up and do an acquisition.   The debt would be quite lucrative too.