A major project can sound like an excellent investment until you discover how many approvals, financing decisions, and years of construction stand between the announcement and the revenue. A broader infrastructure business offers another way in.
Ottawa set November 5 for its next budget. That puts spending priorities back in focus, including the investment needed to support economic growth. Investors don’t need to pick the single project most likely to survive every political debate.
Roads, electricity networks, water systems, and industrial developments all require specialized work. A company serving several of those needs can earn from a much wider collection of decisions. That makes the opportunity easier to own through delays affecting any one development.
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Work begins before construction
An infrastructure plan needs design, engineering, environmental work, and advice before the finished asset starts operating. Those services turn a broad ambition into something customers can approve, finance, and build.
They can also be required when an existing asset needs upgrading. Investment opportunities aren’t limited to brand-new megaprojects. A growing population, ageing infrastructure, or changing electricity demand can create work in smaller pieces over many years.
That gives investors a simple choice. You can own the company providing services across projects, with less dependence on one facility reaching completion. The trade-off is that the service company must keep its people busy and deliver work profitably.
WSP
WSP Global (TSX: WSP) provides engineering, science, and infrastructure services across international markets. Its customers and end markets provide several possible paths to growth, with Canadian budget priorities adding one more area of interest.
At its June quarter-end, backlog reached $20.1 billion, equivalent to about 11.6 months of revenue. Backlog means contracted work expected in the future. It gives a view of demand, although projects can still change scope or timing.
Organic net revenue growth was 5%, describing growth without relying on acquisitions and other specified effects. That’s important since a company buying businesses also needs its existing operations to keep winning work.
The distinction helps explain the investment. Buying another firm immediately makes the group larger. Growing the work already provided can make existing employees and client relationships more productive. Shareholders benefit most when both forms of growth earn worthwhile returns.
Considerations
WSP’s adjusted earnings per share rose to $2.88 from $2.35. Its reported net earnings per share fell, so the adjusted improvement isn’t the whole accounting story. Adjustments and acquisition-related items deserve attention when assessing how much of the growth is repeatable.
Quarterly operating cash inflow was $451.6 million, below $583.9 million a year earlier. That doesn’t cancel the growth opportunity, but does make collecting customer payments and turning work into cash an important part of the assessment.
I like WSP for gradual purchases in a long-term portfolio. I’d keep the position moderate because acquisitions, integration costs, and an expensive share price can reduce the reward from an otherwise attractive industry. Strong price discipline helps avoid treating the whole backlog as profit. Employees need paying and work needs completing before shareholders receive the benefit. A government budget can improve demand without making every contract equally valuable.
Bottom line
For Canadian stock investors, WSP offers wider infrastructure exposure than a single development company. Its role is primarily business growth, with dividends providing a smaller contribution to the investment return.
I’d consider WSP for infrastructure exposure that can survive one project being postponed. Work already contracted supports the case, while Ottawa’s budget could add to future demand. The attractive outcome is a growing collection of profitable assignments, giving shareholders a reason to stay invested after the budget headlines fade.
