Dazel Posted May 8, 2021 Share Posted May 8, 2021 https://www.thestar.com/business/2021/04/24/the-faceoff-snc-lavalin-is-off-the-world-banks-blacklist-but-catching-up-with-canadas-largest-engineering-firm-wsp-global-will-be-difficult.html Link to comment Share on other sites More sharing options...
Dazel Posted May 8, 2021 Share Posted May 8, 2021 WSP vs. SNC This is a comparison that SNC should want to make. WSP mkt cap is triple that of SNC. WSP operating very well...they do not own the $3b capital division that SNC does and their back log is similar to that of SNC. SNC has transformed into WSP’s business model so they are a stalking horse in my opinion. This comparison can only happen once O&G business sale is complete...which confirms the transformation in my mind. SNC services business has been strong through out this ordeal and is gaining momentum (nuclear division value is rising)... let’s see how they do compared to WSP....but it would be insane to think WSP is not looking at buying out SNC as soon as O&G sale happens. Valuation for WSP their shareholders would win big...SNC short term jump would be great but the key to this to get to the levels I think $70 to $100...they need to do it through good operations and cash flow...buybacks and dividends are a buy product of this. I continue to the buy stock...just about everyday this week...maybe why I have been so quiet?! cheers, Dazel Link to comment Share on other sites More sharing options...
Mick92 Posted May 9, 2021 Share Posted May 9, 2021 Dazel, what are your expectations for Q1 earnings/the AGM? Good earnings to me would be a nice earnings print on engineering services, nothing from capital and hopefully nothing lost on projects. Potential other items: An update on the covid recoveries/litigation. If they will get recoveries on these, would take a lot out of the fear out of covid for them in terms of cost overruns on the projects. I wonder will there be an update on the capital allocation plan, maybe an increase in dividend or buyback. They did say on the last call that it would be H2 before the capital plan will be unveiled so this might be too much to hope for. Finally, I wonder if there will be any blowback on the executive compensation plans. Personally, I voted against it. Link to comment Share on other sites More sharing options...
longlake95 Posted May 9, 2021 Share Posted May 9, 2021 I too, voted against the comp plan. Too much for too little - yes the ship is turned away from the rocky shoal, but Ian is being paid as if party time on the Aloha deck. I’m really growing tired of seeing so much stock based comp issued at various Co’s. How about more cash based comp, where, the NEO is then required to buy the stock in the open market and hold for a minimum of 5 years...along with all cash bonuses to be invested in stock purchased on the open market.... too many of these NEO’s aren’t joined at the hip with shareholders over time. rant over. Link to comment Share on other sites More sharing options...
Dazel Posted May 10, 2021 Share Posted May 10, 2021 (edited) I care about service revenue trajectory and that’s all with regards to operations going forward...let’s look at it this way...all future earnings and growth should be measured against WSP and Tetra Tech..that’s the new model and it it will become a cash flow machine like WSP and Tetra Tech. That has not happened yet....and 407 cash flow will rise soundly in the second half of this year (other capital royalties-revenues are steady) but 407 looks bad again this quarter and next because of COVID (the capital division should be measured against Franco Nevada). Remember the cost of the 407 on the balance sheet is $0 and it’s value is-will be above $3b on the COVID recovery. There is lots of room to grow the capital Divison it is the most valuable type of asset in the world. I have been critical of management in the past but Ian Edwards is worth every Dollar if: 1) service revenue trajectory is continued 2) Oil and Gas is sale is completed on the terms agreed 3) dividends raised at the annual meeting 4) buyback announced at the annual meeting 5) remaining LSTK revenue remains on target SNC’s restructuring was clobbered by COVID.....oil prices were “NEGATIVE” at this point last year...commodities were decimated, so their resource business was also completely smoked. It took courage to take the write offs and choose the path SNC took and they will be rewarded in the years going forward. They have picked the weeds (wrote off $billions in LSTK, and bad businesses) and watered the flowers (services). Old SNC was a lumpy mess of earnings I never invested in it before I did not like their model (It was combination of Ferovial S.A and Flour). Their problems in 2018 until now were as big as any I have seen. It Was a short sellers dream...long WSP and short SNC...was a great move. That was then...going forward SNC cash flow will be predictable and the capital division will flourish and be reevaluated. The new SNC (combination of Franco Nevada (capital), WSP and Tetra tek (services)) and deserves to trade at $70 and likely more like $100 when the model is proven because multiples on this model are very high. It’s a Warren Buffet story...If Ian Edwards has righted the ship like I think he has $8m is a bargain. If we can stop looking back and look forward (write offs are over)...it will be a fun ride. ”I am like Wayne Gretzky, I go where the puck is going not where it’s been” Warren Buffett Edited May 10, 2021 by Dazel Link to comment Share on other sites More sharing options...
Dazel Posted May 14, 2021 Share Posted May 14, 2021 Q1 results were solid...oil and gas had $5m profit...when its sale is confirmed we will see a buyback and dividend increase...was hoping that would be today but you can’t have it all...at first glance it appears they paid off substantial debt instead which is prudent. I would like to see a refinance of the remaining debt with maturities extended substantially like Fairfax does. It would make sense to do this before a buyback program and a dividend raise. very pleased with the numbers...should be a very good year. Link to comment Share on other sites More sharing options...
Dazel Posted May 14, 2021 Share Posted May 14, 2021 I accept that I was wrong on a dividend and buyback program announced today. Here is how I see it...debt ratings agencies would NOT want to see it. SNC will refinance to long maturities after Oil and gas is sold (ratings agency upgrades would happen after this). The cheaper debt and long duration of it would mean absolute no liquidity risk. It is prudent to do this and quite frankly I am a bit humbled by missing the maturity schedule of debt. It is not a problem but those fiscally responsible like Fairfax choose to pay higher interest expense for longer maturity debt. The extra interest is a trade off for liquidity. management could have announced a dividend hike by a couple of cents and easily covered it...but it would be promotional. I appreciate that they when the increase the dividend it will be back to historical levels. If you were going to take advantage of your low stock price you don’t want o raise dividends before a buyback it’s dumb. Managements that do this are promotional not looking to buy back their company cheap. So...I was wrong for today...but expect a stock buyback announcement on the completion of the oil and gas assets. Later this year expect a “substantial” dividend increase back to historical levels....$1.25 per annum to start and rising because the business model now is FAR superior to the past model. Today I am confident in my assessment...SNC is fixed and poised to do very well in the future. When the market realizes it...I will stop buying. ”If you wait for the robins, spring will be over” WB Link to comment Share on other sites More sharing options...
Mick92 Posted May 14, 2021 Share Posted May 14, 2021 Q1 results look solid at first glance to me. Will dig in more later. They said on the last call that they wanted $600m for working capital or thereabouts and with cash down to $700m after clearing the $175m debt maturity, they don't have much wiggle room for dividends or buyback without taking on more debt. Especially since cashflows are estimated to be flat for the year. They may still take on more debt to do so? Possibly as part of an overall refinance. I agree they may become aggressive once the sale closes and by then there may be a little more Covid certainty as well. I'm thinking we may have to wait until this investor day in September for their master capital plan to be unveiled. Link to comment Share on other sites More sharing options...
Dazel Posted May 14, 2021 Share Posted May 14, 2021 Mick I expect a refinance taking cash to $1 billion....cash flow next year will likely all be paid out in buy backs and dividends....and that will continue forever... it will be a cash flow machine after 2021 LSTK year is over...remaining LSTK will be profitable but heavy on cash use in 2021. Write offs are over. Prem I hope you bought.... Disclosure. I bought more on the open... Link to comment Share on other sites More sharing options...
Xerxes Posted May 14, 2021 Share Posted May 14, 2021 Dazel, Interestingly FFH 13-F looks to be out today. Not much of interest on the SNC front FAIRFAX FINANCIAL HOLDINGS LTD/ CAN Top 13F Holdings (whalewisdom.com) Fairfax Financial Holdings Ltd Can Top Holdings 13F Filings (holdingschannel.com) Link to comment Share on other sites More sharing options...
MarioP Posted May 15, 2021 Share Posted May 15, 2021 I find it special that we had a gain of 16% on those results. For me there was nothing special in it, just the consequences of the good moves during last year. Bay street seems to rediscover this company and say : "hey these guys are really doing what they told!" There is even a 20M$ earning to come from highway 407 when the stay at home order is over. And the important cashflow from Oil and gas division and the payment from LSTK project. Again there is nothing special to do to gain this. Just don't do anything foolish. It will be interesting to follow it into the next quarter. Link to comment Share on other sites More sharing options...
finetrader Posted May 20, 2021 Share Posted May 20, 2021 On 5/15/2021 at 10:46 AM, MarioP said: Bay street seems to rediscover this company and say : "hey these guys are really doing what they told!" Exactly, this is just the beginning Link to comment Share on other sites More sharing options...
Dazel Posted May 22, 2021 Share Posted May 22, 2021 (edited) Agreed. Of the 5 catalysts for the stock I wrote about earlier only 1) trajectory of the service business (all of SNC revenue will be services) 5) LSTK remains in check Were established. And....Bay street analysts jumped on board. The biggest Bear was atRaymond James where he went from $25 to $40. These guys and gals are not of great interest to me but they do help with confidence in stocks for the crowds. 2) Oil and gas sale finalization is the game changer for the company as it signifies SNC entering a new business plan area that they hav been working hard on. The WSP model. 3) raising the dividend and 4) stock buyback program will take the stock back to all time highs. SNC will become a Canadian “Blue Chip” again on these catalysts I bought more again on Friday at $32.80. It’s buck for about .37 cents still even after the recent rise. Dazel Edited May 22, 2021 by Dazel Link to comment Share on other sites More sharing options...
Dazel Posted June 3, 2021 Share Posted June 3, 2021 and bought more today... Link to comment Share on other sites More sharing options...
valueinvestor Posted June 4, 2021 Share Posted June 4, 2021 Bought more today via options. Any chance anyone knows when the short squeeze will happen? I thought it would’ve been with earnings. I think it will worth a lot more, once it redeems its blue chip status. Here’s hoping! Link to comment Share on other sites More sharing options...
Dazel Posted June 8, 2021 Share Posted June 8, 2021 Gabriel, With regards to your recent stockhouse post I have a couple of comments: I don’t believe that SNC should wait for an upgrade of their credit ratings…they should be in the market now or immediately after the sale of Oil and gas to extend maturities when money is free you take it. If they have to pay 100 to 200 basis points more so be it…the after tax result is not a big deal when the opportunity cost of buying your stock back is so high at .35 on the dollar. It should be done immediately…and we have let management know this. Remember they paid back $300m debt in March and do not have any maturities for sometime. The short position of the UK hedge fund is no longer relevant other than their small time manipulation of prices short term in-light volume. This is a pair trade likely long something like WSP…now meaningless…SNC has already written the entire Kentz transaction off…past. Buyback program and dividend increase are immediate post oil and gas close in my opinion. I also do not believe that capital should be sold it has 0 cost base so does not make sense even at $3.5b. It is the piece (collateral hard asset) that will allow an SNC a low refinance rate on extending maturities. It is also the greatest asset in the world and will continue to appreciate. It’s a cornerstone of our margin of safety. Gabriel you have done An unbelievable job with your analysis on SNC. Just a little patience…Oil and gas sale is imminent (second quarter close) and management said it was on track at the latest conference call. A few numbers …$277m gain on the sale of O &G, they have won their lawsuit on COVID payments at LSTK crosslink (likely $100m plus to be added to earnings this year) and $2.5b in capital assets are not recognized on the balance sheet. Once the sale is complete SNC becomes in play….if management does not listen and do a buyback and dividend raise SNC will get take over bids. It’s too cheap! When oil and gas is sold we hit $40 immediately in my opinion. For what it is worth. Dazel Link to comment Share on other sites More sharing options...
Dazel Posted June 8, 2021 Share Posted June 8, 2021 A couple more things because it’s rare you see something like this SNC situation. When you are beat down as far SNC was and you are fighting short manipulation It seems like an eternity to get out of it…and then bang part of your thesis is proven correct. The stock jumps from $17 at the low to $34…a double! You get impatient because you think it’s worth $50 today and $100 in a year and half…but you doubled your money (not really no one got in at $17)). So it goes like this…where’s the buyback! Wheres the dividend raise?WSP trades for 3x SNC…but we have 407 and they don’t! They are buying growth with their shares (dilution) and still we have a bigger back log. We have nuclear division which is the best in the world….why are we not $50? Why not $70? Maybe there is something I am missing? Do all those shorts I just beat know something I don’t…it’s so cheap is there something else? Why is so cheap still? Human nature. Lesson…forget everything in the past…would you buy today? SNC was the most hated stock on the planet…not anymore…redemption is something that few get the opportunity to experience. The easy money is the money that will be made now in SNC when it has been fixed and the market is still thinking about the past. When all the decisions are easy…when the stock moves from $70 to $72 one day no one will even know…but when it falls from $33 to $31…for those that bought early it’s a trigger. Don’t get sucked in to that emotion…I owe a debt of gratitude to many here for their help with Fairfax many moons ago that built up my capital position. We bought below $100 and had a hell of ride…Bank of America we were buying at $6 many were buying warrants…when you get a blue chip company on the operating table with great assets you buy hand and fist because that is how you get rich in the stock market. I am buying because the upside from here is enormous. The business model is great…and will demand a premium multiple…need to be patient and buy dips. "The best thing that happens to us is when a great company gets into temporary trouble, we want to buy them when they're on the operating table." -Warren Buffett . Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 8, 2021 Share Posted June 8, 2021 Over the last few weeks, we have moved some of our cash out of FFH and into SNC. Margined position that will ultimately become core over the next few months, and primarily for diversification. Cautiously begining the set-up for after O/G has had its season. SD Link to comment Share on other sites More sharing options...
Gabriel Posted June 14, 2021 Share Posted June 14, 2021 (edited) Hello Dazel, Thanks Dazel and everyone for your posts. I am using this source that compiles EBIT of engineering and construction firms. Engineering firms usually trade at a higher multiple so we are conservative here. The EBIT multiple is 20.84 (reference below). EBIT of engineering services is projected at 650m in 2022. so the EV here is 13.55B for this division only. Add Capital which you say should not be sold and you have another 2.5B for the 407 (based on previous 10.01% sale and some) and 0.4 B for the rest (per FBN financials) minus 1B debt and you get 15.45B / 175.5m shares or 88$ per share or 37 cents on the dollar. I added 31,500 shares today. We are going to 40$ when they announce the buyback in September. Why and how do i know? Because they are as smart as you and me, and it is the best thing to do when they sell resources. Source: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.html 1. NYU professor credible source + the Excel sheet is provided with all the sheets for all engineering companies - Reliable. 2. Data provided (link top right to all disaggregated data including that of SNC Lavalin 3. Large and representative sample size - You can do your own verification. 4. Conservative considering multiples are lower for construction firms than engineering firms and they are bundled together here - Better. Edited June 14, 2021 by Gabriel Link to comment Share on other sites More sharing options...
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