Dazel Posted March 10, 2021 Share Posted March 10, 2021 Thank you for your views you are the market.... No comment on paying $1b for the numbers that are being thrown around here on normalized earnings? They have written off about $2b in the last 2 years...resource segment was the biggest problem...it’s now gone. When oil and gas deal closes they will have painfully exited the business. What’s left in LSTK? 3 Canadian light rail projects where they have historically MADE money. They have taken a charge here already even though they think they will be reimbursed. I agree....the numbers look so stupidly low compared to value the mind can’t help but think there is something wrong! Sentiment....the most hated company on the planet from Canadians, shareholders et all. Management needs to show up...buy back the stock. It’s almost free....and worth way more dead than alive! Link to comment Share on other sites More sharing options...
KJP Posted March 10, 2021 Share Posted March 10, 2021 In my view, kab60 and Spek are making some good points to consider. I think they raise at least two issues: 1) The remaining lump-sum projects may be a black hole, and the write-offs continue. I think an outsider can attempt to draw various inferences from the known nature of the remaining projects, but as a practical matter it's impossible to know. Indeed, even with perfect information about the present, bad things can happen. On the other hand, as has been mentioned, the remaining backlog is roughly $2 billion. Let's assume a very bad scenario (though even worse can be imagined) ensues and the these projects drain another $1 billion over the next three years before they're off the books. In that scenario, what is the company worth today? Put another way, if the engineering business is, in fact, 8-10% margin and the capital segment is what it is, then what are they worth and, based on that assessment, what is the implied negative value being assigned to the run-off Project segment? 2) If this is so straightforward (and, as kab noted, the bull case is very simple) why aren't the executives and Board members buying? If I'm interpreting SEDI correctly, they appear to actually be reducing their exposure to equity when they can. How do you explain that? Notably, these are the people that have the most information about the current actual risks of the run-off Project segment. Another issue lurking is that the companies in this industry with higher valuations (e.g., WSP and NV5) have demonstrated competence in capital allocation via M&A. I don't think you can say the same for SNC. At the end of the day, I see this as a traditional "value"/regression-to-the-mean investment. But in my view that approach is best pursued via diversification, so I've kept my position size here relatively small. I may change my sizing if insiders start buying or the project backlog continues to roll off without incident and the price doesn't move significantly. Link to comment Share on other sites More sharing options...
SharperDingaan Posted March 10, 2021 Share Posted March 10, 2021 There is little doubt that the 407 is the diamond, but sadly it's buried under a very deep pile of sh1te! To gain access via SNC, an investor has to put up with a lot of mystery, wait for a string of 'clean' earnings without additional write-off's, and pay CAD 25-26 for the privilege. Going forward, the pending economic recovery will reduce the likelihood and magnitude of future write downs, but it's still an iffy prospect. Alternatively you could simply buy a CVE, better quality, better and nearer term prospects, and at < CAD 10.50 a ticket. Or CVE warrants at < CAD 5.25. 5 CVE vs 1 SNC. CVE rises 20-25% (very doable) and the SNC ticket is free (CVE gain pays for it). Which is the better investment? compared to alternatives SNC is pretty far down the list. SNC is a Quebec 'main-street' company - like Bombardier it is not going to be allowed to fail. So what is the rush? A great many would argue that it really needs to stink up the place some more, get an 'assist', and sell for less. Sure its a great company, but in the current market one can do a lot better, elsewhere. SD Link to comment Share on other sites More sharing options...
longlake95 Posted March 10, 2021 Share Posted March 10, 2021 I agree with all of the above. I own the stock. The one fly in the ointment...if SNC is so cheap...why aren't Edwards & Co. piling into the stock? Ownership of the stock by executives is hardly noteworthy... Link to comment Share on other sites More sharing options...
kab60 Posted March 10, 2021 Share Posted March 10, 2021 Thank you for your views you are the market.... No comment on paying $1b for the numbers that are being thrown around here on normalized earnings? They have written off about $2b in the last 2 years...resource segment was the biggest problem...it’s now gone. When oil and gas deal closes they will have painfully exited the business. What’s left in LSTK? 3 Canadian light rail projects where they have historically MADE money. They have taken a charge here already even though they think they will be reimbursed. I agree....the numbers look so stupidly low compared to value the mind can’t help but think there is something wrong! Sentiment....the most hated company on the planet from Canadians, shareholders et all. Management needs to show up...buy back the stock. It’s almost free....and worth way more dead than alive! I think it's obvious that their infrastructure asset and their service business is worth a lot of money. But it's not like this is a complicated case. Which seems to imply that the market assigns a very negative value to their remaining projects. All I'm asking is: How come you're confident that the worst is behind them? And how did you reach that conclusion - other than them already taking a lot of provisions? I haven't spent much time on this, but to make this a big position I'd wan't to have a good idea for the potential hits they might take. And I wonder why insiders aren't buying hand over fist. I hope you take this the right way. I was close to getting steamrolled by CB&I, because I was very fond of the value of their tech biz and decided to trust management that they had things under control. But I've learned more than once now that management without skin in the game - espescially if they're up against the wall - shouldn't get the benefit of the doubt. Not least if they have a very poor track record. I'm really interested in your insights, because you know the case much better than I. And it obvious there's value here, a lot of value, IF their projects are under control. Link to comment Share on other sites More sharing options...
longlake95 Posted March 10, 2021 Share Posted March 10, 2021 from the 2019 Management Info Circular: Ian Edwards owns 8354 common share (worth $200K) and 42,000 grants/LTIP units...likely not paid for with his own money. Many here, probably own close to or more than Ian. He will get to his 5X base salary requirement, but it will likely be through grants of stock not through open market purchases with his own $$$. That is worrisome. RBC sold 4.1M shares yesterday. they still own 9.5% of the stock. Link to comment Share on other sites More sharing options...
Dazel Posted March 10, 2021 Share Posted March 10, 2021 Prem did you buy RBC’s shares? This is a situation Fairfax should be involved in. Jarislowsky Fraser bought all of RBC share sales in November. Thanks for all your comments all....some of your takes are that of the market which is not paying attention to what is going on and that is why it’s not $40 right now that is helpful since your intelligence level is WAY above the market! And there are lots of the other investments out there you are hardly to blame...hope you find them! SD your are one smart dude...and an excellent trader....this is not a trade...it’s now a buck for 25 cents it’s derisked. will update on news. GLTA Dazel Link to comment Share on other sites More sharing options...
longlake95 Posted March 10, 2021 Share Posted March 10, 2021 I hope your right Dazel :o Link to comment Share on other sites More sharing options...
kab60 Posted March 10, 2021 Share Posted March 10, 2021 I too hope you're right. I'll even cross my fingers. I think there are good odds for a fine result, but I've asked twice now, and I still haven't gotten any answer as to why you feel confident they won't keep getting slammed. I'm asking not to be an ass but because I think the situation could be very interesting if it was possible to put some probabilities on different outcomes if anyone had insight into their projects. If the reason for no answer is you simply don't know, that's fine. You just seem very confident, so I'm wondering if I'm missing anything obvious in regards to their projects, or you cross your fingers that cost overruns won't destroy too much value. Link to comment Share on other sites More sharing options...
longlake95 Posted March 10, 2021 Share Posted March 10, 2021 I also wonder why BAM or someone hasn't taken a run at them... Link to comment Share on other sites More sharing options...
Mick92 Posted March 10, 2021 Share Posted March 10, 2021 Reasons to be optimistic projects won't take massive charges in future. 1. On the call they mentioned covid related cost recoveries they believe are likely to come back to them but which weren't recognised in the current numbers. 2. The discontinued ops/final year end 2020 charges were likely a good chance to get the big bath out for projects. Seems reasonably likely they were conservative with these charges. 3. The remaining projects are supposedly mostly concentrated in areas that are more profitable/less likely to take a beating than others. Obviously, can't ever really believe anything management says. The big issue is why aren't management buying stock like crazy if the charges are done now. Stock looks crazy cheap unless they have better info as to why it's not. Link to comment Share on other sites More sharing options...
longlake95 Posted March 10, 2021 Share Posted March 10, 2021 Reasons to be optimistic projects won't take massive charges in future. 1. On the call they mentioned covid related cost recoveries they believe are likely to come back to them but which weren't recognised in the current numbers. 2. The discontinued ops/final year end 2020 charges were likely a good chance to get the big bath out for projects. Seems reasonably likely they were conservative with these charges. 3. The remaining projects are supposedly mostly concentrated in areas that are more profitable/less likely to take a beating than others. Obviously, can't ever really believe anything management says. The big issue is why aren't management buying stock like crazy if the charges are done now. Stock looks crazy cheap unless they have better info as to why it's not. yup. that's my point. They should all be buying hand over fist...if they feel that strongly that the worst is over. :( Link to comment Share on other sites More sharing options...
SharperDingaan Posted March 10, 2021 Share Posted March 10, 2021 All else equal, with a long time horizon, we would nibble at this. But we would only do it if a good chunk of the investment was gains from something else, and even then - primarily for the diversification. If we just wanted risk, for about the same price, we could buy Air Canada! Management is great at running an engineering firm; but the 407 is really a utility being run by engineers, and badly. As management isn't walking the talk (insider buying), most can only conclude that worse is to come. The obvious solution is to spin out their piece of the 407 into a separate entity, have a different management run it, and IPO a portion of it. Very unlikely until recovery is well established, and at least a year away, if ever. Coming out of Covid, most everything is likely to materially appreciate - doubles being the norm, not the exception. Hence to at least match those other returns; SNC has to be risk adjusted, and bought at a discount. Get it by either waiting it out, or applying a gain from something else. Eventually SNC might get religion, but it could take a while. Different strokes. SD Link to comment Share on other sites More sharing options...
Xerxes Posted March 11, 2021 Share Posted March 11, 2021 Sharper, I got to ask :-). In your post, you usually say "we". Is that a royal we, or are there actually two people using your account. --------------------------------- On FFH and SNC, What is the one thing Prem Watsa always brings up about when he talks about his major big equity position: a great operator CEO. All of his picks have always been centered around CEO operator that he immensely respects and believes in. I think he chooses his CEO first before choosing the company as an investment. Not sure, where current's SNC Lavalin's CEO falls in that regard. Link to comment Share on other sites More sharing options...
SharperDingaan Posted March 11, 2021 Share Posted March 11, 2021 Family money. I do the 'investing' for the family from Canada, via a family owned corporate entity, plus a few joint accounts. My brother-in-law (quantity surveyor) does the real estate from the UK. The family is based in the UK, and capital repatriates to the UK (when FX goes our way) as/when the portfolio's are overcapitalized. All else equal we visit once/year and have a tax-deductible family board meeting. Works out very well :) SD Link to comment Share on other sites More sharing options...
Dazel Posted March 11, 2021 Share Posted March 11, 2021 SD, Agreed. There is much more sexy stuff out there short term...unless Someone starts to count SNC’s 407 backed out value and decides to buy a quarter for fifty cents...then it’s sexy as hell. Long term shareholders would lose...when its blue chip again and it will be...its $100. Cheers and good luck old friend! Dazel Link to comment Share on other sites More sharing options...
longlake95 Posted March 11, 2021 Share Posted March 11, 2021 SD, Agreed. There is much more sexy stuff out there short term...unless Someone starts to count SNC’s 407 backed out value and decides to buy a quarter for fifty cents...then it’s sexy as hell. Long term shareholders would lose...when its blue chip again and it will be...its $100. Cheers and good luck old friend! Dazel Dazel...if it goes to $100 in 5 years... 1 large DQ blizzard a month for year - on me :D Link to comment Share on other sites More sharing options...
longlake95 Posted March 12, 2021 Share Posted March 12, 2021 CFO bought 2000 shares in the open market. When is Ian buying? Link to comment Share on other sites More sharing options...
Dazel Posted March 12, 2021 Share Posted March 12, 2021 Longlake, Ian has a lot of restricted shares....he is likely not rich like all you guys! As for the blizzard it will be expensive to send that blizzard a month to the south of France! Cheers, Dazel Link to comment Share on other sites More sharing options...
longlake95 Posted March 12, 2021 Share Posted March 12, 2021 Longlake, Ian has a lot of restricted shares....he is likely not rich like all you guys! As for the blizzard it will be expensive to send that blizzard a month to the south of France! Cheers, Dazel Rich? who's writing from the south of France...LOL.. ;) As for the blizzard, we'll figure something out! Maybe I will have to come over there and buy you lunch in Arles. Yes, that's my point, his 40,000 in restricted stock was likely GIVEN to him as part of his LTIP comp. Sure, if the SNC does well then he does well - but he shares in none of the downside. CEO's who own big positions of their own company's stock, paid with their OWN $$$, tend to REALLY create shareholder value - and they walk the walk...so to speak. LL Link to comment Share on other sites More sharing options...
Dazel Posted March 16, 2021 Share Posted March 16, 2021 Well we are at 30 cents on the dollar now....lot’s of time left Prem...nothing wrong with buying up at these dumb prices! Those that had faith (Religion SD?) I commend you for making the leap...hold onto your hat! The key to the reappraisal is the closing of the oil and gas assets sale which will trigger higher dividend and stock buy backs.... Link to comment Share on other sites More sharing options...
longlake95 Posted March 18, 2021 Share Posted March 18, 2021 What’s up with the equity swaps SNC entered into? Link to comment Share on other sites More sharing options...
Gabriel Posted March 24, 2021 Share Posted March 24, 2021 I saw the swaps on SEDI. Maybe hedges against newly granted options. We should receive the annual report this week. Hopefully it says something about dividends and buybacks. A hike to 5 cents per Q and a 200m buyback would make sense to pull us above 35$. Link to comment Share on other sites More sharing options...
Gabriel Posted March 25, 2021 Share Posted March 25, 2021 CDPQ holds 35m shares JFL holds 24m shares as of 1/12/2020: https://www.dropbox.com/s/948up0gm0ir1zv5/Jarilowsky.pdf?dl=0 RBC holds 23m shares as of 1/12/2020: https://www.dropbox.com/s/fgb6fy23zler0x5/RBC.pdf?dl=0 CDPQ CEO said lately he likes SNC and is holding. JFL sees a great opportunity. RBC also sees the same per their Q4 2020 note to investors. "We hold several event-driven positions, with a core holding in SNC-Lavalin. While SNC has been a significant detractor from returns over the past two years, it is now more appropriately sized and offers meaningful upside given its depressed current valuation and positive catalysts in 2021." https://www.rbcgam.com/documents/en/fund/rbc-multi-strategy-alpha-fund-qc.PDF Link to comment Share on other sites More sharing options...
Gabriel Posted March 27, 2021 Share Posted March 27, 2021 EV/EBIT ratios of engineering firms - NYU study dated Jan 21 EBIT of Engineering Services in 2020 was 571M - Data per Q and links below, puts the value of Engineering Services at 11.3B or 64$ per share. ADD 12-16$ PER SHARE FOR CAPITAL = 80$ PER SHARE ADD 30% FOR APPRECIATION IN NEXT 2-3 YEARS PRE/POST PANDEMIC + BIDEN INFRA PLAN EFFECT and remove 5$ for debt. AVERAGE EV/EBIT of 61 MAJOR engineering services AND construction firms (usually lower ratios) is 19.80 on average per study conducted at NYU. Source: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.html LINKS TOP LEFT PROVIDE ALL THE DATA INCLUDING THOSE OF SNC-LAVALIN. Are you smelling what I am smelling ? Q4 2020: Slide 18 shows EBIT = 153.1M https://www.snclavalin.com/~/media/Files/S/SNC-Lavalin/investor-briefcase/en/2020/q4-2020-conference-call-presentation.pdf Q43 2020: Slide 6 shows EBIT = 142M https://www.snclavalin.com/~/media/Files/S/SNC-Lavalin/investor-briefcase/en/2020/q3-2020-conference-call-presentation.pdf Q2 2020: Slide 19 shows EBIT = 133M https://www.snclavalin.com/~/media/Files/S/SNC-Lavalin/investor-briefcase/en/2020/q2-2020-conference-call-presentation.pdf Q1 2020: Slide 21 shows EBIT = 143M https://www.snclavalin.com/~/media/Files/S/SNC-Lavalin/investor-briefcase/en/2020/conference-call-presentation-q1-2020.pdf Link to comment Share on other sites More sharing options...
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