Monday, May 12, 2014

SNC-Lavalin Group Inc.

On my other blog I am today writing about the research information sites I use continue...

I own this stock of SNC-Lavalin Group Inc. (TSX-SNC, OTC-SNCAF). This stock was one from Mike Higgs' list of dividend growth stocks. I liked the idea of low dividends and high dividend increases. When you are building up a portfolio, low dividends are good for tax reasons. High dividend increases are attractive for the future. By 2008 this stock had grown so much it was too high a percentage of my portfolio. I sold 1/3 of my stock.

In 2012 I bought 100 shares for my trading account. I was selling low paying dividend stocks from my Pension RRSP and I still wanted SNC as part of my portfolio. In the end SNC was not one of the low paying dividend stocks I sold, but I still bought some shares for my Trading Account.

This is a dividend growth stock with low dividends, but generally high dividend increases. The dividend increases have been lower recently and this is why the 5 and 10 years dividend increases have the pattern of 13.9% and 20.4% per year. The most recent dividend increase was for just 4.3% in 2014. The current dividend yield is 1.88% and the 5 year median dividend yield is 1.65%.

With low dividend yield you generally get low Dividend Payout Ratios. DPRs were low under 30% for EPS and under 20% for cash flow in the past. The 5 year median DPR are fine at 33% for EPS and 22% for CFPS. However, 2013 was not a good year this company and the DPR for 2013 was 383% for EPS and 69% for CFPS. But, one bad year change the nature of any particular investment.

The last few years have not been good for this company. The 5 year total return is just 0.39% per year with a capital loss of 1.24% per year and dividends at 1.62% per year. The 10 year total return is better 12.05% per year with 10.13% per year from capital gains and 1.93% per year from dividends. My total return is a 26.65% per year with 24.42% from capital gains and 2.23% from Dividends.

Outstanding shares have not changed over the past 5 and 10 years. Outstanding shares grow because and Stock Options and declined because of Buy Backs. Revenue has not grown much over the past 5 years, but the 10 years growth is quite good. The 5year running averages for the last 5 years is a bit better than the 5 year growth.

Last year was a bad year for EPS so the 5 and 10 years growth is down. However, if you look at the 5 year running averages over the past 5 and 10 years, growth is good. Last year was not a good year for cash flow either, so the 5 and 10 year growth is not good. However, if you look at the 5 year running averages, growth is good.

Revenue per Share is up by 2% and 9% per year over the past 5 and 10 years. If you look at 5 year running averages, the growth is at 3% and 7.5% per year over the past 5 and 10 years. Analysts expect revenues for 2014 to slightly below those of 2013. For the 1st quarter, the 12 month revenue is down by 2.3% compared to 2013 revenues.

Earnings per Share are down by 35% and 8% per year over the past 5 and 10 years. However, if you look at 5 year running averages growth, the growth is at 12% and 15% per year over the past 5 and 10 years. Analysts expect 2014 EPS to be much better than for 2015. The 12 month EPS to the end of the first quarter over 2013 is up by 112%.

Last year was not a good year for cash flow and cash flow is down by 15% per year over the past 5 years and only up by 3.3% per year over the past 10 years. Here again, if you look at 5 year running averages, the 5 and 10 year growth is quite good at 14.5% and 16.2% per year over the past 5 and 10 years. Analysts expect that the 2014 will be a better year for cash flow and the CFPS over the 12 months ending at the end of the first quarter compared to the 12 months ending in December 2013, is up by 57%.

The Return on Equity was low in 2013 at just 1.8%. However, ROE has been higher than 10% each year over the past 10 years except for 2013. The 5 year median ROE is at 20.5%. The ROE on comprehensive income was a bit better at 3.2%. Its 5 year median ROE is at 17.6%.

The current Liquidity Ratio for 2013 was low at 0.81. This ratio has always been low. The company uses the cash flow to pay for current liabilities and if you add in cash flow after dividends, the Liquidity Ratio becomes better, but still low at 0.91. Adding back in the current portion of long term debt ratio is 0.95 and with cash flow after dividends, ratio is 1.06.

The Debt Ratio is also low, but assets cover liabilities as ratio is 1.20. The current Leverage and Debt/Equity Ratios are high for an industrial stock at 6.01 and 5.01, respectively. These are also higher than the 10 year median Leverage and Debt/Equity Ratios which are at 4.75 and 3.78.

If you hold any stock for a long time, and I have had this stock for 16 years, the company will go through some tough times and/or reorganizations. This stock is no different. I expect that it will recover from its current rough time but it is hard to say exactly when. In the meantime, because I have held this stock for some 16 years, I am earning a return of 28% yield on my original stock purchase. See my spreadsheet at snc.htm.

This is the first of two parts. The second part will be posted on Tuesday, May 13, 2014 and will be available here. The first part talks about the stock and the second part talks about the stock price.

SNC-Lavalin are involved with engineering and construction work around the world, this includes infrastructure and Buildings; infrastructure and construction; power (nuclear, thermal, hydro etc.); chemicals and petroleum; environmental projects; mining and metallurgy projects. They have offices and Canada and around the world, from Algeria to Vietnam, including Australia, Europe, Russia, Africa, Middle East, Asia, South America, USA. Its web site is here SNC-Lavalin.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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