Canadian Construction Stocks

SNC-Lavalin Group Inc Valuation – Initial Coverage $TSE:SNC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how SNC-Lavalin Group Inc (TSE:SNC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Snc-Lavalin Group Inc is a Canada-based engineering and construction company. The Company’s segments include Mining & Metallurgy, which provides solutions for a range of projects in the aluminum, gold, copper, iron ore, nickel, fertilizers and sulfur product sectors, among others; Oil & Gas, which includes projects in the upstream, midstream and downstream (supporting infrastructure) sectors for oil and gas and resources companies, supporting these clients operating across the asset lifecycle from front end evaluation through decommissioning (capital expenditures and operational expenditures); Power, which includes projects and services in hydro, nuclear and thermal power generation, renewable power generation, energy from waste, and electrical transmission and distribution systems; Infrastructure, which is divided into the Infrastructure & Construction and Operations & Maintenance sub-segments, and Capital segment is the investment and asset management arm of the Company.

SNC Chart

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-SNC – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $8,495,328,813 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.04 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 156.75% Pass
6. Moderate PEmg Ratio PEmg < 20 16.32 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.27 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.04 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.88 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $3.45
MG Growth Estimate 6.45%
MG Value $73.87
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $50.06
MG Value based on 0% Growth $29.35
Market Implied Growth Rate 3.91%
Current Price $56.35
% of Intrinsic Value 76.28%

Snc-Lavalin Group Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.41 in 2012 to an estimated $3.45 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 3.91% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Snc-Lavalin Group Inc revealed the company was trading above its Graham Number of $37.17. The company pays a dividend of $1.03 per share, for a yield of 1.8% Its PEmg (price over earnings per share – ModernGraham) was 16.32, which was below the industry average of 28.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-8.39.

Snc-Lavalin Group Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$8.39
Graham Number $37.17
PEmg 16.32
Current Ratio 1.04
PB Ratio 2.27
Current Dividend $1.03
Dividend Yield 1.83%
Number of Consecutive Years of Dividend Growth 17

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $4,246,001,000
Total Current Liabilities $4,077,635,000
Long-Term Debt $821,433,000
Total Assets $9,244,134,000
Intangible Assets $3,348,765,000
Total Liabilities $5,507,489,000
Shares Outstanding (Diluted Average) 150,442,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.47
Dec2015 $2.68
Dec2014 $8.74
Dec2013 $0.24
Dec2012 $2.02
Dec2011 $2.49
Dec2010 $3.13
Dec2009 $2.36
Dec2008 $2.05
Dec2007 $1.00
Dec2006 $1.04
Dec2005 $0.85
Dec2004 $0.23
Dec2003 $0.56
Dec2002 $1.32
Dec2001 $0.18
Dec2000 $0.17
Dec1999 $0.25
Dec1998 $0.31
Dec1997 $0.27
Dec1996 $0.25

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.45
Dec2015 $3.71
Dec2014 $3.92
Dec2013 $1.69
Dec2012 $2.41
Dec2011 $2.48
Dec2010 $2.29
Dec2009 $1.73
Dec2008 $1.29
Dec2007 $0.85
Dec2006 $0.78
Dec2005 $0.64
Dec2004 $0.52
Dec2003 $0.61
Dec2002 $0.58
Dec2001 $0.21
Dec2000 $0.24

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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