Piping is seen on the top of a receiving platform which will be connected to the Coastal GasLink natural gas pipeline terminus at the LNG Canada export terminal under construction, in Kitimat, B.C., on Wednesday, September 28, 2022. THE CANADIAN PRESS/Darryl Dyck (The Canadian Press)
Aecon Group (ARE.TO) shares plunged nearly 19 per cent on Tuesday, after analysts at BMO Capital Markets downgraded the stock, warning of a “cash flow drag” extending into 2025.
The Toronto-based construction firm announced $237 million in one-time charges related to its work on TC Energy’s (TRP.TO) Coastal GasLink pipeline project on Friday. The natural gas artery is due to span 670 kilometres between Dawson Creek, B.C., and the LNG Canada processing and export facility being built on the province’s Pacific coast.
Aecon Group Inc. (ARE.TO)
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TC’s long-delayed Coastal GasLink project has been subject to repeated cost overruns. It’s owned by private equity firm KKR & Co., Alberta Investment Management Corp., and TC.
Aecon says it expects $127 million in one-off charges linked to Coastal GasLink, as well as $110 million in additional charges related to three large-scale projects it’s working with partners to build.
The terms of a settlement agreement announced by the company in a June 28 news release are expected to result in no cash impacts for Aecon.
“The lack of settlement payments related to the Coastal GasLink project was disappointing,” BMO Capital Markets analyst Devin Dodge wrote in a note to clients on Tuesday.
“The additional costs to complete the other legacy fixed-price projects suggest a more pronounced cash flow drag in 2024 that could potentially carry over into 2025, with prospects for partial recoveries of cost overruns appearing to diminish.”
Dodge cut his rating on Toronto-listed Aecon shares to “market perform,” the equivalent of hold, while maintaining a $17.50 price target.
The stock was down 15.67 per cent as at 1:47 p.m. ET.
Aecon is set to report second-quarter financial results on July 24, when the company says it will provide investors with more details about the settlement, and the review of the remaining three large fixed-price legacy projects.
“The Coastal GasLink settlement allows Aecon to close the chapter on one of the most technically and financially challenging projects in its history, and represents continued progress in reducing the uncertainty associated with Aecon’s four legacy projects,” CEO Jean-Louis Servranckx stated in Friday's release.