Highlights from the RBC Canadian Automotive, Industrials & Transportation Conference
This afternoon, we hosted Alexandre L'Heureux, WSP's President & Chief Executive Officer, and Alain Michaud, WSP's Chief Financial Officer, during day two of RBC's Canadian Automotive, Industrials & Transportation Conference.
Our view – Overall, our discussion highlighted strong demand across the company's end-markets and robust organic backlog growth (which has been broad-based). We highlight key takeaways from our discussion below:
• Strong demand environment – Our conversation with WSP management highlighted that the demand trends across its markets remain favourable. As Q1 results indicated, the company's backlog is in good shape, with all segments contributing to organic backlog growth in recent quarters. Additionally, management commentary indicated that favourable trends from Q1, particularly for the U.S. market, have continued into Q2. While there are headlines related to inflation/supply chain/etc. that appear to be impacting results across other sectors (i.e. retail), our conversation with management indicated that things are generally progressing well. In our view, this speaks to the resilience of the Infrastructure space and good execution on the part of WSP.
• Resilience to macroeconomic slowdowns – WSP highlighted that its business is ~60% driven by the public sector, which we note is generally more resilient (and in some instances, can be counter-cyclical as infrastructure spending becomes a tool for stimulus), while its ~40% exposure to private sector spending provides an offset, particularly during periods of stronger economic activity. While project cancellations etc. are possible during a downturn, business at this point is trending well.
•U.S. Infrastructure bill should contribute in 2023 onwards – Management noted that while the funding included in the bill should "flow through" in 2023 onwards, the company is currently advising the White House on how to most effectively deploy its federal infrastructure funding. The company is also realizing indirect benefits from the funding as it is currently advising private clients/state governments on their capital projects, and these clients feel much more confident going forward given the upcoming federal spending.
• Capital allocation – On M&A, the company noted they are open to M&A, but will remain disciplined and not attempt to "time the market". The company did note that they are open to paying for quality assets, where warranted. On the increased involvement of financial sponsors in the sector via M&A, management noted that the current backdrop (i.e. higher interest rate environment) likely favours strategic buyers that can drive synergies post acquisition.