Wednesday, June 24, 2015

SNC-Lavalin The Most Undervalued Stock

SNC-Lavalin Group trades at $44.08 per share and I believe is one of the most undervalued stocks out there in today’s market. I come from an engineering background and SNC is an industry leader worldwide. There are four main segments to SNC including: Resources, Environment and Water, Power and Infrastructure. SNC works worldwide and in turn bring in huge profits as we will see in the metrics. SNC has few direct competitors globally as they are so diverse but I will compare them Stantec for my analysis.

The main reason SNC may be so undervalued is of course the legal issue. SNC has been charged with alleged bribery for business conducted in Libya, this is not new within the construction industry but it has major implications. If found guilty SNC will not be able to bid government work for the next 10 years a significant portion of their profits.

I believe this will never actually happen, and in fact the personnel involved have been removed from their positions. I think they will maintain their good standing and be able to bid but they will be on thin ice.

There is plenty of value within the company for example they are looking at selling their stake in highway 407 worth approx. $3 Billion or $20 per share. SNC has many contracts on the books and billions in assets as mentioned at the current rate it is ridiculously cheap and If I had some spare capital that’s what I would buy.
        1. Price to Earnings Ratio

P/E Ratio TTM


Forward P/E Ratio

Based on the above you can see how cheap SNC really is. Much lower than the TSX average. At these rates it seems strange the stock keeps falling. Even Warren Buffet was thinking of an acquisition at these levels.

        2. Yield

Dividend Yield

Yield of both SNC and STN are both on the weak side, but with the growth opportunities this seems acceptable for the risk.

Dividend Growth Rate

SNC has actively increase their dividend at a rate of 8% which I feel may pay off later. They show they are looking to reward their shareholders by increasing yield but also using money to grow the company.

        3. Payout Ratio

Payout Ratio

Both companies have very low payout ratios meaning they have plenty of money left to reward shareholders in the future through growth, buybacks, or increasing the dividend.

I believe SNC offers one of the best buying opportunities on todays market and investors should take a look for themselves! The one thing to keep in mind though is that legal issue and how it may effect SNC in the long run.

No comments:

Post a Comment