SNC-Lavalin changes CEO, we maintain our FVE

For now, Morningstar analyst Krzysztof Smalec maintains his ‘Poor’ stewardship rating and reserves judgment on current management before any potential rating upgrade

Morningstar Analysts 12 June, 2019 | 8:30AM

SNC Lavalin Smaller

We maintain our $34 fair value estimate for SNC-Lavalin (SNC) after the no-moat engineering and construction firm announced the retirement of CEO Neil Bruce. Chief Operating Officer Ian Edwards, who brings over three decades of experience in the industry, will step in as interim president and CEO. For now, we maintain our Poor stewardship rating and reserve judgment on current management before any potential rating upgrade. Edwards faces a tall order, as SNC-Lavalin has been beset by challenges, including bribery and corruption charges, headwinds in the oil and gas segment due to diplomatic tension between Canada and Saudi Arabia, and recent execution issues.

That said, since he was named chief operating officer in January, Edwards has been instrumental in reviewing SNC-Lavalin’s portfolio and implementing measures to simplify the business and improve project oversight. We look forward to learning more about his strategy, including potential measures to further derisk the firm’s portfolio.

In 2019, SNC-Lavalin consolidated its engineering and construction operations to four segments from seven: resources (which includes the mining and metallurgy and the oil and gas businesses), nuclear, infrastructure, and engineering design and project management, or EDPM. A key differentiator for SNC-Lavalin is its capital segment, through which it invests in infrastructure projects through P3s, or public-private partnerships.

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