MONTREAL - SNC-Lavalin's main engineering and construction business is expected to remain volatile for some time but the time may be right to buy shares in the embattled company as its stock continues to flounder, industry analysts say.
Frederic Bastien of Raymond James says patient investors will be “amply rewarded” for buying the Montreal-based company's shares (
TSX:T.SNC,
Stock Forum) at current levels.
SNC's shares fell 47 cents at $39.51 in Tuesday afternoon trading. They have fallen 20 per cent from its 52-week peak reached after rallying from months of negative headlines about corruption allegations involving former top officials.
Bastien, a Vancouver-based analyst, said a small South American energy contract announced Monday and a contract announced earlier this month for engineering work for MEG Energy's (
TSX:T.MEG,
Stock Forum) central processing facility in northern Alberta are positive signals for the SNC-Lavalin division that has suffered recent setbacks. These include a claim for late penalties on a large gas processing complex in Algeria and a dwindling order book.
Maxim Sytchev of Dundee Securities says Monday's contract in Colombia “doesn't move the needle” for SNC-Lavalin considering its backlog as of the second quarter was US$9.7 billion. Although the contract is believed to be worth US$55 million, the company will likely only receive US$25 million to US$35 million after equipment costs, he says.
Still, he says the South American deal highlights that the company continues to win work amid unprecedented turmoil.
Sytchev says the company's focus on reducing administrative costs and the impending completion of difficult projects should improve future results.
He says it's “simply not tenable” that SNC-Lavalin's shares continue trading at a substantial discount to its peers.