Friday, April 21, 2017

SNC-Lavalin Group Inc.

Sound bite for Twitter and StockTwits is: Cheap for reasons. Generally when a stock is cheap when the rest of the market is not there are reasons for that. Business has been slow and it does have some vulnerabilities. Most analysts seem to see a brighter future for this company. See my spreadsheet on SNC-Lavalin Group Inc.

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. I bought this stock in 1989 and then sold off some in 2008 because it is a higher risk stock and it grew too big in my portfolio.

This stock has done well for me. I have had it for 18 years and my total return is 25.11% per year with 22.51% from capital gains and 2.60% per year from dividends. The dividend payments have covered 169% of the cost of my stock purchase. For this stock I bought 18 years ago, I am making a dividend yield of 32.12% and my dividends have grown by 17% per year. I have done so well because I bought this stock when the stock's market cap was $455M. The current market cap is 8B.

This stock used to have low dividends and good dividend growth. However, the dividend growth has been hovering just over 4% since 2012. Currently the dividends are moderate and the dividend growth is low. The current dividend is rather high for this stock at 2.02% based on dividends of $1.09 and a stock price of $53.97. The 5 and 10 year dividend growth is at 4.36% and 13.24% per year. The last dividend increases was in 2017 and it was for 5%.

Let's face it. This company has had problems recently. EPS peaked in 2010 and the dividend growth slowed in 2011. It was in 2011 when the corruption scandals of this company concerning Libya hit and news on this was in the newspapers from then to 2016. There were also some scandals in Quebec. It all seems to have now simmered down. However, this company is in construction and engineering business and volatility should be expected.

The stock has not performed well lately. The 5 year total return is just 4.28% with 2.50% from capital gains and 1.79% from dividends. The 10 year total return is better but not that great for this stock at 8.08% with 6.27% from capital gains and 1.81% from dividends.

The stock's Liquidity Ratio is not great. The one from 2016 is just 1.06. I prefer this to be closer to 1.50 or higher. Adding in cash flow after dividends does not help in this case as it just lowers the ratio to 1.04. This means that the company could be vulnerable in bad times. In the last two years the EPS/CF Ratio is above 1.00. This means that EPS is lower than CFPS. This is also not a great situation.

I get 5 year low, median and high median Price/Earnings per Share Ratios of 17.16, 22.18 and 27.21. The corresponding 10 year values are 15.35, 20.77 and 26.07. The corresponding historical ones are 14.05, 19.05 and 24.93. The stock price has been going up in part because the P/E Ratios have been going up. The current P/E Ratio is 18.55 based on a stock price of $53.97 and 2017 EPS estimate of $2.91. It would seem that the current P/E Ratios is reasonable and below the median.

I get a Graham Price of $41.07. The 10 year low, median and high median Price/Graham Price Ratios are 1.45, 1.84 and 2.28. The current P/GP Ratio is 1.31 based on a stock price of $53.97. This stock price testing suggests that the stock price is relatively cheap. However, on an absolute basis a P/GP Ratio only shows the stock as cheap if the P/GP Ratio is 1.00 or lower. On the other hand a ratio of 1.31 is not a high ratio.

I get a 10 year Price/Book Value per Share Ratio of 3.72. The current P/B Ratio is 2.10 based on a stock price of $53.97 and BVPS of $25.76. This stock price testing suggests that the stock price is relatively cheap.

I get an historical median dividend yield of 1.46%. The current dividend yield is 2.02% based on dividends of $1.09 and a stock price of $53.97. The current dividend yield is some 39% higher than the historical median dividend yield. This stock price testing suggests that the stock price is relatively cheap.

When I look at analysts' recommendations I find Strong Buy, Buy and Hold recommendations with most being a Buy. The consensus recommendation would be a Buy. The 12 month stock price consensus is $63.13. This implies a total return of 19% with 16.97% from capital gains and 2.02% from dividends based a current price of $53.97.

Jesse Snyder on Financial Post talks about SNC's acquisition of WS Atkins PLC. Karen Thomas of Motley Fool says that SNC is not cheap and has corruption charges still hanging over its head. BVN Staff writes looks at some technical in the BVN Journal. They basically say that SNC is neither oversold nor over brought. See what analysts are saying about this stock on Stock Chase. They rather like SNC going forward.

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 Group Inc.

The last stock I wrote about was about was Veresen Inc. (TSX-VSN, OTC-FCGYF)... learn more . The next stock I will write about will be Fortis Inc. (TSX-FTS, OTC-FRTSF)... learn more on Monday, April 24, 2017 around 5 pm.

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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