Is it Safe to Buy SNC-Lavalin Group Inc. Yet?

SNC-Lavalin Group Inc. (TSX:SNC) continues to win big Canadian contracts despite the legal woes.

| More on:
The Motley Fool

Most investors are giving SNC-Lavalin Group Inc. (TSX:SNC) a wide berth until the legal troubles surrounding the company are finally resolved.

Let’s take a look at the current situation to see if it makes sense to take a contrarian position in the stock while others are avoiding the name.

Corruption and fraud issues

SNC-Lavalin’s difficulties are connected to a series of legal woes surrounding contracts that were obtained using unscrupulous business practices.

Canada’s iconic engineering firm is already serving a 10-year ban on World Bank projects. The organization determined that SNC had not followed the rules when it won a contract to build a new bridge in Bangladesh.

Closer to home, the company is facing RCMP charges related to contract secured in Libya. That process is ongoing and could result in a similar ban on work in Canada.

The RCMP situation is the biggest concern for investors right now, but some analysts say the market should look at a string of recent contract wins as evidence that SNC-Lavalin could escape the process with a lesser penalty.

New deals

The RCMP charges have not had a negative impact on SNC-Lavalin’s ability to win new contracts in Canada, and a recent agreement with the Government of Canada’s new Integrity Regime has cleared the way for the company to continue bidding, while the RCMP case works its way through the legal process.

Since the RCMP charges were announced, SNC-Lavalin has secured a number of important Canadian contracts.

The company and its partner were chosen to build and maintain Montreal’s new Champlain Bridge. That contract could last for decades. SNC-Lavalin is also part of a group that has been chosen to operate and manage a unit of Atomic Energy of Canada Limited.

At the provincial level, SNC-Lavalin was recently chosen to construct a larger transit extension in Toronto and just got the nod from Infrastructure Ontario to modernize 19 Ontario Disability Support Program offices.

The company is even winning Canadian awards. On November 4, SNC-Lavalin was awarded two Gold Awards at the Canadian Council for Public-Private Partnerships’ awards event for excellence, innovation, and effective procurement on two Canadian contracts.

Financials

SNC-Lavalin finished Q3 2015 with $2.45 billion in cash and short-term investments. Long-term liabilities were just $1.5 billion. The company has a record revenue backlog of $12.7 billion and plans to sell its stake in the Highway 407 toll road, which some analysts believe could fetch $3 billion.

The net cash position plus the estimated value of the 407 add up to about $26 of the company’s current stock price of $42 per share. That means investors are paying just $16 per share for the rest SNC-Lavalin’s assets plus the large order backlog.

One estimate puts the value of that part of the company at $29 per share.

Should you buy?

SNC-Lavalin is still a world-class engineering firm. If you believe the company will avoid a ban in Canada, it might be worth taking contrarian position in the stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

More on Investing

top TSX stocks to buy
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

This dividend stock has been absolutely crushing the TSX 60 and looks like it will continue to do so while…

Read more »

money cash dividends
Stocks for Beginners

Where to Invest $10,000 in April 2024

If you've already created a diversified portfolio and are looking for more options from a windfall, here is where I…

Read more »

data analyze research
Investing

The Ultimate TSX Stock to Buy With $1,000 Right Now

Brookfield Asset Management (TSX:BAM) is one of the best Canadian stocks to buy for those looking to put capital to…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »