WSP Global Inc T.WSP

Ink Research

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Morning Report: Director buys as WSP stock moves higher on growth potential 

November 24, 2022

Engineering solutions firm WSP Global (WSP) has moved up our rankings and now sports a mostly sunny overall INK Edge ranking, versus cloudy six months ago. One of the biggest challenges facing the stock in the INK quantitative ranking system is its pricey valuations. According to Refinitiv data, WSP had a trailing 12-months cash flow of $8.21 per share at Q3 end, down from $8.49 at the end of Q4 2021. That leaves it with a price-to-cash-flow-per-share ratio of about 20.7, above the TSX average of 8.2. WSP addressed declining cash inflows from operating activities in its Q3 earnings report, attributing it to payroll timing issues, a change in the days of sales outstanding, and US tax changes which delayed the deductibility of certain expenses. Looking ahead, WSP envisions growth. It revised its 2022 outlook with an expected net revenue midpoint of $8.85 billion (from $8.5 billion previously) and an adjusted EBITDA midpoint of $1.52 billion ($1.46 billion previously). The firm's backlog has also been growing. It was $13.3 billion at Q3 end, up 15.2% over the preceding 12 months.

WSP's game plan includes growth through acquisitions. In September, it acquired UK-based Capita REI and GL Hearn businesses from Capita Plc as well as the Environment & Infrastructure business of John Wood Group plc. After stumbling in the first half of the year, WSP stock now has some momentum behind it, up 22.2% over the past six months. In August, WSP closed a $920 million equity offering, half of which was via a private placement with Singapore's GIC Private Limited, Caisse de depot et placement du Quebec, and a subsidiary of the Canada Pension Plan Investment Board. More recently, an insider bought as the stock moved higher. That is a positive signal that supports the idea that the stock's growth prospects may warrant above-average valuations.