Banque National SNC-Lavalin (SNC, $40.67): a solid quarter that exceeds forecasts.
Consolidated revenues for SNC-Lavalin's second quarter amounted to $2.13 billion (G$), above the estimate of $1.83 billion by National Bank financial analyst Maxim Sytchev and the consensus of $1.88 billion.
Profit before tax and amortization (BAIIA) is $184 million ($30 million higher than analysts' expectations at $153-154 million, due to more pronounced than expected organic growth in engineering and nuclear services.
Earnings per share are $0.49 compared to the consensus of $0.30 and Maxim Sytchev's forecast of $0.23.
The loss of net operating cash during the quarter amounted to $156 million compared to $129 million a year ago. The loss is mainly due to the completion of turnkey projects and a decrease in working capital of $190 million compared to $84 million in the second quarter of 2022.
Management organic growth forecasts are increased to 13% for engineering services compared to 6% previously.
Following the results-following teleconference, Maxim Sytchev notes that SNC's management seems more positive and expects cash flows to go green in the second half of the current fiscal year, particularly in the 4th quarter. This improvement is not contingent on the recovery of the costs of certain projects in dispute.
SNC-Lavalin wants to increase margins in some territories and bring them closer to the median margins for the entire company, disinvestment in Nordic companies should help on this point.
The company's debt is also expected to moderate with the growth of EBITDA and the increase in excess cash flows.
The analyst sees an opportunity to buy back shares from SNC in the second half of the current fiscal year, but does not expect the company to make mergers and acquisitions before the 2024 or 2025 fiscal years and expects the company to turn to the U.S. market when the time comes.
The missing ingredient according to the analyst is a more constant generation of excess cash flow and increased margins. The sale of Linxon could be part of the means to achieve this objective.
For Maxim Sytchev, SNC is progressing in the right direction. He reiterates the recommendation of "outperformance" on the title and raises the target price to $46.00, compared to $39.00 previously.