March 9, 2022
WSP Global Inc.
2022-2024 targets ahead of forecasts
Our View: Positive. We expect a positive reaction to WSP's 3-year target release as it points to 2024 Net Revenue and Adjusted EBITDA above RBC and consensus forecasts (we note, however, that consensus had limited inputs). The company is guiding to >5% organic growth, which is also ahead of our forecasts, with future M&A expected to drive further upside.
Targets are ahead of RBC expectations – The new 3-year plan points to Net Revenue of >$10B by 2024 (ahead of RBC/consensus of $9.1B/ $9.3B). This translates into an expectation of at least 8.3% annual Net Revenue growth, which includes >5% annual organic growth (implying ~$0.9B contribution from acquisitions). We do not model any M&A contribution in our forecasts, but some consensus estimates may reflect future M&A. Achieving the top-line target implies total Net Revenue growth over the 3-year period of >30%. WSP is also guiding to Adjusted EBITDA margin of 17.5%-18.5% by 2024 (ahead of RBC forecast of 17.2%), with margins expected to increase by 30-50 bps annually. Assuming $10B of Net Revenue, this implies 2024 Adjusted EBITDA of $1.75-$1.85B, ahead of RBC and consensus forecast of $1.56B. See Exhibit 1 inside. In addition, WSP expects to save 1MM hours through improvements and simplification, and to decrease its real estate costs/footprint by 20% (based on leases expiring during 2022-2024). Over the long-term, WSP "aspires" to "double in size", sustain mid- to high-single digit organic growth, and achieve a >20% Adjusted EBITDA margin.
A more balanced business by 2024 – Over the next 3 years, WSP intends to scale its capabilities in its top three market sectors: Transportation & Infrastructure, Earth & Environment, and Property & Buildings. More specifically, WSP expects to move from ~65% exposure in Transportation & Infrastructure and Property & Buildings to ~40%-60%, resulting in increased exposure to the Earth & Environment, Power & Renewable, Energy, Water, and Industry sectors. In parallel, WSP plans to shift from ~55% exposure to Engineering & Design Services to ~50% over the 3-year period (thus increasing exposure to Consulting & Strategic Advisory, which is more "front end" work). This "front end" work positions the company to win additional work over the life of the project, and is relatively higher margin. See Exhibit 2 inside.
ESG targets included in the plan:
• Environmental: 1) 40% decrease in Scope 1 and 2 market-based GHG emissions (and -60% by 2030); 2) 15% decrease in absolute Scope 3 emissions (-30% by 2030); and, 3) >50% clean revenues (i.e., positive environmental impact).
• Social: 1) +5% YoY in representation of women and underrepresented groups; and, 2) 10% decrease in total recordable incident rate per year.
• Governance: 1) >90% of business partners/suppliers signed onto its business partner code of conduct by 2024; and, 2) 100% integration of ESG criteria within global leader compensation.