Wednesday, April 24, 2019

SNC-Lavalin Group Inc

Sound bite for Twitter and StockTwits is: Dividend Growth Industrial. The stock price is probably cheap to reasonable. It is obvious that the company see problems in the future, especially in the short term because of the cutting of the dividend. See my spreadsheet on SNC-Lavalin Group Inc.

I own this stock of SNC-Lavalin Group Inc (TSX-SNC, OTC-SNCAF). I had this stock on a hit list as it was on Mike Higgs' Canadian Dividend Growth stock list and on the other dividend lists that I followed. I have made money because I bought this stock in 1998 and sold a chunk of it in 2008. Since 2008, it has only gone up and down and that is all.

When I was updating my spreadsheet, I noticed they had an earnings loss for 2018. I have tracked this stock since 1992 and this is the first loss that they have had. They Liquidity Ratio is very low, but unfortunately it has always been low. If you add back in cash flow after dividends and the current portion of the long term debt, they barely make it pass 1.00 with a ratio of 1.05. This is a vulnerability. They had a bad year in 2018.

The current yield is 1.17%. This is a low yield but the company always had a low yield with 5, 10 and historical yields at 2.16%, 1.98% and 1.48%. The current yield is lower than the 5 and 10 year yields because they recently cut their dividends by 65%.

The dividend growth has really slowed in the last few years as you can see from the chart below. With the recent cut to dividends, the dividend growth to date is a negative 16% per year over the past 5 years.

The Dividend Payout Ratio for EPS for 2018 is not calculable because of the earnings losses. The 5 year coverage is 66%. The DPR for EPS for 2017 was 47% and it is expected to be 12% in 2019. The DPR for CFPS for 2018 is 89% with 5 year coverage at 45%. The DPR for CFPS is high in 2018 as I prefer this to be 40% or less.

Debt Ratios are not where I would like them to be and there is a vulnerability here, especially for the Liquidity Ratio. The Long Term Debt/Market Cap ratio is fine at 0.78. I discussed the Liquidity Ratio above. The Debt Ratio for 2018 is low at 1.39, but the 5 year median is good at 1.59. The Leverage and Debt/Equity Ratios are a little high at 3.54 and 2.54 with 10 year medians at 3.98 and 2.92.

The Total Return per year is shown below for years of 5 to 26 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.

From Years Div. Gth Tot Ret Cap Gain Div.
2013 5 4.53% 1.43% -0.80% 2.22%
2008 10 9.11% 3.29% 1.19% 2.10%
2003 15 14.88% 9.21% 6.85% 2.36%
1998 20 15.01% 17.37% 13.93% 3.44%
1993 25 16.86% 16.04% 13.13% 2.91%
1992 26 13.78% 12.55% 10.41% 2.14%

The 5 year low, median, and high median Price/Earnings per Share Ratios are 13.69, 15.50 and 17.31. The 10 year corresponding ratios are 15.35, 19.11, ad 23.90. The corresponding historical ratios are 14.05, 19.05 and 24.93. The current P/E Ratio is 15.51 based on a stock price of $33.51 and 2019 EPS estimate of $2.16. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a Graham Price of $31.79. The 10 year low, median, and high median Price/Graham Price Ratios are 1.31, 1.70 and 2.04. The current P/GP Ratio is 1.05 based on a stock price of $33.51. This stock price testing suggests that the stock price is relatively cheap.

I get a 10 year median Price/Book Value per Share Ratio of 2.91. The current P/B Ratio is 1.61 based on Book Value of $3,651M, Book Value per Share of $20.80 and a stock price of $33.51. The current ratio is 45% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

I get an historical median dividend yield of 1.48%. The current yield is 1.19% based on a stock price of $33.51 and dividends of $0.40. The current yield is 1.5% above the historical median yield. This stock price testing suggests that the stock price is relatively reasonable and near the median.

The 10 year median Price/Sales (Revenue) Ratio is 0.91. The current P/S Ratio is 0.59 based on 2019 Revenue estimate of $10,000M and a stock price of $33.51. The current ratio is 35% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

Results of stock price testing is that the stock is relatively cheap. The P/S Ratio and the P/B Ratio suggests the stock is cheap. The dividend yield test suggests that it is reasonable. When companies change the dividends it generally tells you able the current future short term expectations of the company. With the cut in dividends, you know that the short term future is expected to have problems.

When I look at analysts’ recommendations, I find Strong Buy (1), Buy (6), Hold (6) and Underperform (1). This is a pretty broad spread. The consensus would be a Buy. The 12 month stock price is $45.27. This implies a total return of 36.29% based on a stock price of $33.51.

See what analysts are saying about this stock on Stock Chase. Some are saying hold if you own, but do not buy. Ambrose O'Callaghan on Motley Fool says this is a speculative buy. A writer on Simply Wall Street thinks that the CEO is being paid too much. Victor Ferreira on Financial Post says that analysts Ross Healy thinks that the company has an uncertain future.

Montreal-based SNC-Lavalin is a professional service and project management company, as well as an infrastructure owner. From offices in over 50 countries, SNC provides engineering and construction services, financing and asset management, consulting, procurement, and operations and maintenance management, plus sustaining capital services. Its web site is here SNC-Lavalin Group Inc.

The last stock I wrote about was about was Barclays PLC ADR (LSE-BARC, NYSE-BCS) ... learn more. The next stock I will write about will be Fortis Inc. (TSX-FTS, OTC-FRTSF) ... learn more on Friday, April 26, 2019 around 5 pm. Tomorrow on my other blog I will write about Montreal Gazette Portfolio.... learn more on Thursday, April 25, 2019 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. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

1 comment:

  1. All current metrics and ratio are skewed by the 3.25 billions sale of a part the 407. I think the CEO might announce his retirement soon and possibly dividend going back to 15 cents for Q1 2019. With that asset sale revenue will be sharply lower for 2019, unless oil and gas contracts really pick up I dont expect higher than 45 - 48 range. That asset sale was to please the bondholders(CDPQ) and the credit rating agencies. I think its oversold and will slowly recover iver the next quarters. #Long