Thursday, May 14, 2015

SNC-Lavalin Group Inc.

Sound bite for Twitter and StockTwits is: Dividend Growth Industrial. I still like this stock. I have been selling it off in the RRSP/RRIF accounts because of the low dividend. However, I have started to buy shares for the TFSA and hope in the future to buy more. This is not a perfect dividend growth stock, but has positive points and probably will do well over the longer term. It has higher risks as it is an industrial stock. See my spreadsheet at snc.htm.

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.

First of all I will talk about dividends. The current dividend yield is 2.21% is relatively high for this company which has often had yields less than 1%. They have had some problems so the stock has declined and as yield moves in the opposite direction, yields have climbed.

This company had had a long history of dividend increases. These have slowed down recently with dividend increases since 2012 at just over 4% per year, including for 2015. The long term median increase was 23%. The growth in dividends over the past 5 and 10 years is at 9.9% and 18% per year.

In order to make sense out of the earnings reported on this stock, TD Waterhouse uses an Adjusted EPS which is core E&C (Engineering and Construction) earnings. This is because SNC shows EPS at $0.24 for 2013 and $8.74 for 2014. The adjusted EPS is $2.46 and this is more in line with what SNC was making prior to 2013. The company made money selling Infrastructure Concession Investments (ICI) investments in 2014.

The Dividend Payout Ratios seem fine. The 5 year median values are 33% and 22%. If we use the Adjusted EPS for 2014, the DPR is 39%. The DPR for CFPS for 2014 is 88%, a rather high value. Analysts seem to think that the cash flow in 2015 will be negative. However, they think that cash flow will be positive in 2016 and then the DPR for CFPS would be around 28%. The Cash Flow did turn negative for the first quarter of 2015.

I first bought this stock in 1998. I have had a good return of 25.57% per year with 23.90% from capital gains and 1.67% from dividends. I have received $7.53 per share in dividends and my cost per share is $5.66. So presently I have received more in dividends that I have paid for this stock.

This stock has not been so kind to recent investors. The 5 and 10 year total returns are a loss of 3.65% and a gain of 7.97% per year. The portion of these returns attributable to dividends is 1.73% and 2.02% per year over these periods. The portion of these returns attributable to capital gain/loss is a loss of 5.38% and gain of 5.95% per year over these periods.

Outstanding shares have not changed over the past 5 and 10 years. Shares have increased due to Stock Options and have decreased due to Buy Backs. Revenue growth is moderate to good. Earnings growth is good over the past 10 years but not so over the past 5 years. For Cash Flow there is no growth over the past 10 years and Cash Flow has declined over the past 5 years.

Revenue is up by 6.2% and 9.1% per year over the past 5 and 10 years. Revenue per Share is up by 6% and 9% per year over the past 5 and 10 years. If we look at the EPS to Adjusted EPS, EPS has growth of almost 1% per year over the past 5 years and 13.7% per year over the past 10 years.

Cash Flow per Share is flat for the past 10 years and down by 24% per year over the past 5 years. However, Cash Flow is uneven and if you look at CFPS using 5 year running averages, growth is at 5.4% and 12.8% per year over the past 5 and 10 years.

Until 2013, the Return on Equity has been good and always above 10%. In 2013 it was 1.8% and this year it is 40.2%. However, for 2014 if you look use the Adjusted Net Income, the ROE becomes a probably more realistic 11.3%.

A negative thing about this stock is that the debt ratios are not very good. The Liquidity Ratios tend to be low and just squeeze past 1.00 when you add in cash flow less dividends. Debt Ratios are low and Leverage and Debt/Equity Ratios are high. However, there has been improvement in the last two recently.

In 2014 the Liquidity Ratio is 0.97. If you add in cash flow less dividends the ratio becomes 0.99. The Liquidity Ratio taking off the current portion of the long term debt is 0.97 and if you add in cash flow after dividends it becomes 1.00.

The Debt Ratio for 2015 is good at 1.50. However, its 5 year median value is 1.29. The 1.50 ratio for 2014 is the best one ever. Leverage and Debt/Equity Ratios for 2014 are 3.02 and 2.02. These are better than the 5 year median ratio of 4.75 and 3.78. These ratios have recently been improving.

This is the first of two parts. The second part will be posted on Friday, May 15, 2015 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.

1 comment:

  1. interesting, looking forward to part 2

    ReplyDelete