Canadian Engineering Firms Outperform U.S. Peers

by: FP Trading Desk

Turns out prospects in the construction and engineering sectors are not quite as dire as thought, at least in Canada.

In the past month, shares in IBI Income Fund (OTCPK:IBIBF) Stantec Inc. (NYSE:SXC) and Genivar Income Fund (OTC:GNVUF) have risen 14%, 9% and 6% respectively, while their U.S. counterparts have dropped an average of 10%, a new Blackmont Capital note said Thursday.

"We attribute the outperformance to better-than-expected second quarter results and more positive economic data points from Canada relative to the United States," the note said. "Investors should remain focused on engineering stocks that have a significant geographic concentration in Canada as we believe this region will likely continue to fundamentally outperform the United States."

One factor to consider is the rapid acceleration of government spending relative to the United States, with the June non-residential building permit data registering a 1.5% increase month over month, while national government-related building permits are up 14% year over year. As well, the permits are up 12% in Ontario and 25% in Quebec, the two provinces most likely to benefit.

Also of note is a rebound in the architectural billings index, which reflects the nine to 12 month lag time between billings and construction spending. In July, the index posted a 5.4-point increase to 43.1. However, only scores above 50 are indicators of an increase in billings.

The score has been less than 50 for 18 months.

Best bets, then are Genivar, with an expected return of 21%, IBI Income Fund at 15%, and Stantec with 11%. Another interesting choice is steel fabricator ADF Group (OTC:ADFJF), with a projected 22% return.