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Stock of the Week: SNC-Lavalin

A good argument for long-term investing.

Andrew Willis 12 October, 2021 | 4:28AM
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Andrew Willis: For many investors, it seemed to come out of nowhere. Legal issues going back to a project that ended nearly twenty years ago – related to the Jacques Cartier Bridge of all places. Big headlines, and a question from investors in SNC-Lavalin (SNC):  is it worth selling over?

Well, the great thing about being a long-term investor is that you’re easily able to put unexpected occurrences in context. And it so happens that SNC has faced similar situations before…     

In Libya, the firm pleaded guilty to paying 127 million dollars in bribes, with a settlement that resulted in a penalty of 280 million dollars. These new charges relate to roughly 2.3 million in bribes, so we expect the potential fine in this case to be less than 20 million dollars.

Equity analyst Krzysztof Smalec says that the balance sheet at SNC remains strong and his long-term thesis remains intact. We think the market’s priced the stock about right, and for those investors willing to wait until 2025, we see modest, but steady improvement in revenues and margins as the company goes through restructuring.

From divesting its oil and gas business to focusing on its strong engineering services – we see cash flows improving in many ways. And with authorities inviting SNC to negotiate remediations - unlike in the Syria case - perhaps they see a better company this time as well.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
SNC-Lavalin Group Inc24.82 CAD0.94Rating

About Author

Andrew Willis

Andrew Willis  Senior Editor at Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.


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