2023-05-10 17:10:05
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What to do with the securities of SNC-Lavalin, Finning and Innergex? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.
SNC-Lavalin (SNC, $35.88): Strong reaction to strong first quarter reflects no nasty surprises
National Bank Financial’s Maxim Sytchev is pleased with the 12.2% jump in SNC-Lavalin’s stock on May 9 in response to strong first-quarter financial results.
Revenues of $2 billion (B$) exceeded forecasts by $1.8B. Operating profit of $161 million was 8% higher than the consensus of $149 million. Earnings per share of $0.33 per share were also six cents better than expected.
The appreciation of the title reflects above all a certain relief on the part of investors who fear unpleasant surprises each quarter, tempers the analyst who does not touch his target price of $39.
The “regular generation of free cash flow remains the catalyst for the title to be revalued in a sustainable way. This dynamic will have to wait until the second half of the year, ”he argues.
In this regard, operations suffered a cash flow shortfall of $57 million in the first quarter, which is still not as bad as the analyst’s forecast of $196 million.
Maxim Sytchev also argues that SNC-Lavalin would benefit from taking inspiration from Jacobs Solutions (J, US$118.76) which is distributing its CMS government solutions division to its shareholders in order to enhance it and reveal growth. and higher margins of its core businesses.
The analyst believes SNC-Lavalin should consider divesting from its Linxon subsidiary, a partnership with Hitachi that does turnkey AC substation projects. “Investors prefer simplified companies,” he says.
In the meantime, the analyst welcomes the 18% jump in engineering services revenues, SNCL Services without the effect of acquisitions in these three markets of Canada, the United States and Great Britain. Its order book increased by 8% in one year and reached a record of 12.1 billion dollars.
The operating margin of 8.4% is also in line with its expectations and compares to that of 7.5% a year earlier.
The nuclear segment increased its revenues by 5%, without the effect of acquisitions, while the operating margin of 13.4% suffered from the slowdown in activities in North America.
The energy and renewable energy division’s revenues fell 9%, without the effect of acquisitions, while its operating margin contracted by 110 percentage points, to 7.5%.
Turnkey AC substation project subsidiary Linxon’s business slowed in all regions except the Middle East where revenue grew 20%. The operating margin improved to 0.7%.
Finally, the CMPF fixed-price contracts division lost $9 million, less than the expected losses of $19 million and, above all, significantly less worse than the losses of $30 million, a year earlier. SNC-Lavalin always negotiates with customers to recover the cost overruns of onerous contracts.
In the end, Maxim Sytchev continues to recommend buying the stock because its recovery is progressing in the right direction. Its target price of $39 is the sum of the specific value given to each of the divisions, plus $10.75 for Highway 407 and other infrastructure concessions.
Finning (FTT, $35.87): a strong quarter that validates Scotia’s thesis
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