Is it just me or have others on this board finally and completely secure and confident that SNC's troubled past is now officially over with? I understand we still have a few bodies on this board who think this is still the same old SNC of the past and that nothing has changed. That's ok as you are entitled to your opinion too.
I view it differently. Let's connect the dots:
1. Last ER was the game changer. All doubts were put to rest for me that there were any issues left with SNC. That ER surprised each and every analyst out there.
2. All analysts increased their share price targets on SNC anywhere from $36 to $45 twelve months forward look.
3. Insiders started buying the stock early this year ahead of the last 2 ER's. Nothing says confidence in a stock than insider buying. This is a first I have seen in the 4 years I owned this stock.
4. LSTK contracts are done eoy for the 2 of them and the REM was 75 percent done end of March so that one will be 100 percent done by around March 2024 imo. There were no surprises on the LSTK results and right on plan to close them out with the risk assessment plan still on course. The money they set aside for the wind down at $300m may not all be needed after all. That just goes back into the profits pool.
5. SNC has won a few claims already through the dispute resolution process. There are other claims out there that they are pursuing "aggressively" knowing full well they are due that money for out of pocket expenses on delay claims or counter claims from other parties. Any design build contract (P3 either) has clauses called "delay events, relief events, force majeure, etc) that protects contractors for unforeseen events beyond their control. Many of their claims would indeed back up SNC. Any monies recovered there are thrown into the profit pool as those costs are already factored in previous financial reporting statements.
6. We have world renowned assets the world needs and craves. Engineering services and CANDU technology are at the forefront of our expertise. Look for bigger and bigger contract wins to come. We have already won some high profile contracts both domestically and international. That trend is only getting started and will escalate. We have climate change issues, floods, tornados, high winds, earthquakes , etc. New engineering and construction processes are needed for 21'st century thinking to combat those destructive forces created by Mother Nature. New engineering services are needed at businesses in general to help them work more efficiently and effectively.
7. We have the Hwy 407 asset we can dispose of now and fetch at least $2b to $3b in proceeds based on a return to more frequency usage now with Covid largely over with and many people are back to work or driving more frequent similar to the patterns prior to Covid. We disposed of the Scandavian assets this week which netted us $136m cdn. Those assets fetched us good money and were deemed not worthy in our new focus going forward. We can get rid of the 407 too and put that money into more benefial use (pay off debt, M&A, increase dividend payouts). I wouldn't use it on a buyback at this price of $35. It's run up already. They should have done the buyback at $25.
8. We would have been free cash flow positive(FCFP) if it wasn't for the remaining overhang of the LSTK contracts to finish up. FCFP is a vital metric used by many analysts and investors to gauge how mgmt is utilizing its assets to generate internal cash to fund its operations rather than take on loans or issue shares (dilution) to fund its operations. Markets love FCFP companies. As the recent articles posted, if SNC wants to get similar share price multiples to WSP, Stantec or their other peers, then they need to get to FCFP. We are getting there and should be there mostly by eoy.
9. Markets these days seem to be taking a shine to SNC. We went from $32 the day before the recent ER to $36 the day of ER. We then dipped below to around $32/$33 and are back to $35 now. That recent dip was just profit taking and nothing more. Those same sellers probably bought back in. I will expect there to be more buyers going forward as we have a solid future shaping up at SNC.
10. SNC is still undervalued in relation to what it's future brings us. Trading at significant discount to its peers. Sure many can say it deserves to trade here now based on the LSTK risks plus their inability to grow revenues and cash flows and earnings the way the other companies do. Fair enough. However I would rather hitch my bets on the underdog right now that is about 3 qtrs away from a new lease on life rather that the others in this space which are probably overvalued and priced to perfection. Any ER's they post that do not meet their shareholders "spoiled expectations" will lead to a noticeable drop in their share prices. We at SNC are on the other side of this pond. Any good news we post on future ER's will only drive our prices up pretty fast and hard. We saw that $4 sp increase on the day of the last ER. I expect many more of those situations coming up. This is all a matter of execution now. Get it done Ian. As they say, If you build it they will come.
Ron