SNC-Lavalin's Russian Acquisition Leaves Raymond James Apathetic

Aug.18.09 | About: SNC Lavalin (SNCAF)

SNC-Lavalin's (OTCPK:SNCAF) recent acquisition of a 48% interest in a Russian engineering company is neither a bad move nor a good one as Raymond James remains wary of the Canadian construction conglomerate.

Frederic Bastien, analyst with Raymond James, figures the Montreal-based firm paid between C$15-million and C$25-million for its stake in OAO VNIPIneft, which specializes in oil refining, gas processing, chemicals and petrochemicals.

Mr. Bastien said in a note to clients:

At first blush we view this transaction positively because it is consumed at what we believe to be an auspicious time in the oil and gas cycle, it further bolsters SNC's exposure to high-margin, low-risk services work, and it helps the firm cast an ever expanding net of opportunities internationally. However the deal, in and of itself, does not compel us to make any revisions to our above-consenus 2010 forecats for the company.

Mr. Bastien is impressed with the Moscow-based company's list of clients, which includes Gazprom (OTCPK:OGZPY), ExxonMobil Corp. (NYSE:XOM), and Royal Dutch Shell PLC (NYSE:RDS.A).

However, he is concerned with SNC's valuation, as the company trades at an enterprise value/EBITDA multiple of 9.9x of Raymond James's forecasts for 2009, compared with the 6.2x posted by its peers.

"We currently see more upside potential in Canada's largest publicly-traded contractor, Aecon Group Inc. (OTCPK:AEGXF)," he said.

Mr. Bastien maintains a Market Perform rating and C$47 target price for SNC-Lavalin.