I listened to both the shareholder conference call and earnings conference calls.
My analysis of yesterday's news as follows:
1. Net income of $67m was good. Better than a continuous loss qtr after qtr. They should be able to build on that next qtr and every qtr that follows. The results exceeded my expectations. I would however like to see 2 solid quarters of positive earnings and each one surpassing the previous qtr by an acceptable level and not by barely squeaking by.
2. Cash and liquid position of over $700m. Good financial position and in no danger of having to take out loans or more debt anytime soon. No need to tap the equity markets.
3. Balance of LSTK contracts is $1.6b. They reduced this by $245m this past qtr. This is very good when you consider we are still in a global lockdown during that qtr. The 2'nd qtr shows the lockdown to be further tightened than 1st qtr and still in effect so expect anywhere between $200 to $225 in work completed on the LSTK contracts. I doubt we match or exceed the $245 posted 1'st qtr. At this rate it looks like the remainder of the LSTK contracts will be fine by the end of 2022 or early 2023 at the latest.
4. No mention of dividend increases or share buybacks. What a shame. I don't mind forfeiting the dividend increase until a later date but they could have and should have done a 25m share buyback. They have the funds to do so without putting any risk to the companies financial position. Now with the share price starting to move up, it will cost the company much more money if they decide to purchase shares. My guess is they will never buy the shares back. They missed their opportunity to do so. They had numerous opportunities to do so knowing full well that the road to recovery was there and no need to wait. Failure here by Ian and the board. My guess is too that the dividend increases will not happen until mid 2022 or 2023 now. Ian wants to wait for the balance of the LSTK contracts to be well into completed status or finished altogether for that matter. Being too conservative here imo.
5. I was not able to get my question through like many here mentioned. Not one question was asked even from outside this forum? Total "BS" and a screwup. How convenient was that?? Shame on them. Yeah good luck sending your questions to the IR staff at SNC like the mediator said and getting a response back from SNC.
6. The lavish compensation of the CEO was addressed by someone thank god!! They had an answer ready here too. How convenient once again. I find it hard to believe when the mediator said there was a 96.2 or 99.2 percent approval on this vote by the shareholders. Total baloney!! My guess is the people who did not vote automatically had their votes voted "FOR" the compensation of the CEO. Remember that those who didn't vote then the company has the right to vote on behalf of the shareholders. How convenient to vote "for" once again here. He doesn't deserve this imo based on what I have seen so far. Some of those decisions to close the underperforming and money losing divisions are common sense. He screwed up on the sale of the 10 percent of the 407 where he accepted the $3b ir $3.2b for it when he had 3 bidders for it. He could have let them sweat longer and waited for a higher bid. He caved in too quickly just to shore up the balance sheet and restore investor confidence. He mentioned on the conference call yesterday about the 407 and its future asset. My guess is he is not selling the remaining 6 percent anytime soon. Oh well perhaps this is a good idea. My guess is that traffic will increase once this pandemic is over and that asset will only continue to be worth more with the passing of time. If Ian were to sell that now he would probably screw that up again and sell it for a discount once again.
7. Expect to see analysts upgrades on the 12 month and further out timeframes on the stock price. The results here caught most of the analysts off guard and they should be able to revise their targets upwards by a good margin.
8. M&A activity. A few of you commented that there was an opportunity for WSP Global to scoop up SNC? Maybe or maybe not. Maybe the Quebec government would allow it as both companies have a solid base in Quebec and major shareholder CPDQ on both companies. However would the federal government allow it? Not so sure and I doubt it. Competition is good in their opinion with more than 1 major engineering firm bidding on contracts. Then again they would rather have WSP buy out SNC rather than a foreigner. A foreigner would never be allowed to buy out a 110 year old Canadian dinasaur like SNC. The roots of SNC will always remain in Canada. If there was a buyout the WSP would be the ideal choice and would put the WSP/SNC at the forefront of engineering expertise worldwide. Each company has some very unique strengths and divisions that would certainly put them on a global map. You also get rid of the remaining SNC stigmatism still left from their scandal days once and for all. Wouldn't Trudeau live to see his Engineering companies be the global leaders? I would think so. Something to be very proud of I say. Could maybe happen but not until further down the line imo (2023 or beyond).
9. Fridays share price action of up $4.43 was much more than anyone could have expected for 1 day(myself anyways). The fact that we had some dips under $4 but then quickly recovered each time is a positive factor which tells me the stock is with the solid long term holders now and that many of the previous shorters probably covered their positions yesterday which also helped drive up the share price. Assuming the shorters are done here after seeing SNC's earnings results and the path now is very clear to profitability then they will most likely move onto another stock. This should help avoid the pullbacks and provide a more stable SNC share price going forward.
Keep an eye out for Monday's trading action and volumes. We could see some profit taking or consolidation happen early in the trading. That is normal and natural. However I don't think it will happen. That would have happened yesterday afternoon or especially near end of day closing bell. It didn't happen which means the market finally woke up and us just long in SNC. Good sign. I now expect the share price to move up by .50 or higher consistently with little movement or brief periods on pullbacks. We are done now with the nickels and dimes and quarters on share price movements. We broke out of the narrow trading range of $26.75 to $29 very convincingly on Friday and broke the 52 week high. Those who understand charts know that when you break the 52 week high you move much higher prices and not lower. (One of the very few things even I understand about charts).
10. Insider ownership. Would be nice to see Ian buy a good number of shares in addition to the other directors who bought recently. Shows a good sign to the investor community. If he doesn't then that proves he is just a hired gun and nothing more. Thinking about himself instead of others. For him this is just a job. He doesn't think like an owner. We saw evidence of this based on his refusal to increase the dividend or initiate a share buyback.
11. Do yesterday's results and plan going forward as discussed on the conference calls mean Ian is safe as CEO or is he gone and only a matter of time? What about the other directors and chairman? How safe are they here?
12. Share price targets going forward IMO:
$35 to $40 by Dec 31, 2021
$40 to $50 by Dec 31, 2022
$50 plus sometime in 2023
Once the LSTK contracts are done and all risks are gone then you are looking at much higher prices and closer to the WSP, Jacobs, Tetrateck's of this world where they all trade at much higher than $100 per share. Those are realistic targets if one wants to wait till the 2024 or 2025 periods imo.
12. Where is Form? Very quiet and not surprising we have not heard from him isn't it. - lololo
We didn't have a brutal loss like we have had in the past. Hopefully he has moved onto another board. His MJ stocks are not doing much these days. He could be licking his wounds from missing out on SNC and suffering on the MJ sector. That is what you call "Double Jeopardy"!
Have a nice weekend everyone!
Ron