RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Pulled the trigger This is why what is key is what the company is doing and achieving on three key fronts. With what I read this division is heading to 700m EBIT in 2023 and a valuation of 14B (20x) or 80$ per share based on NYU multiples of peers (reference below). Cut by half means 40$ per share for this division.
1. The Professional services division : The CFO confirmed the outlook on June 9. SNCL Engineering margins expected in 8-10% EBIT range. Inflation is generally a non-factor as most of the contracts provide pass-through clauses. Margins are expected to bounce back towards the higher end of the guided 8% - 10% in H2/22E (this is a seasonal pattern as H2 is always stronger than H1). SNC continues on its efficiency drive (IT, real estate, process optimization, etc.); note that top performing industry peers generate 15%-16% EBITDA margins (vs. SNC in 13%-14% target range when converting revenue to net basis); over the longer term, management does not see a structural impediment to converging with industry’s leaders.
2. The remaining LSTK: LSTK language reiterated and not getting worse. Management noted that the estimated losses for LSTK are tracking “well below” the $300 mln worst-case scenario number given to the market in the beginning of the year, even though the strike in Q2/22E and inflation continue to have an impact (we model losses in the $30 mln/quarter range going forward). Most of the Ontario projects (Eglinton, Trillium) should be done by the end of this year, leaving us with an estimated $500 mln in backlog left in 2023 (there is a small part of REM in 2024 – see phasing chart in Figure 1 below). OCF is still expected to be slightly positive for the full-year (2022) while FCF would be lower by around $200 mln due to capex ($100 mln) and operating leases ($100 mln). Conversion of net income to FCF appears to be unchanged (when anchoring to 2024).
3. Capital: 10-15$ per share. Traffic picking up on 407. Should be 20% below 2019 levels in 2022 and 10% below in 2022. Even in 2023 (vs 2019) considering price increases.
https://www.dropbox.com/s/832fqsywpul84wb/Jeff_Bell.pdf?dl=0
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/vebitda.html