Smooth Road Ahead for Aecon Group

Raymond James analyst Frederic Bastien thinks the road ahead is smooth for Canada’s largest publicly-traded construction and infrastructure development company, Aecon Group Inc. (AEGXF.PK), which this week announced it won a C$105-million contract to rebuild a portion of Highway 401 in southwestern Ontario.

Aecon said Monday it has been given the contract from the Ontario Ministry of Transportation to reconstruct and widen a 15-kilometre stretch of the 401 east of Woodstock to six lanes from four. It’s the third largest contracted ever awarded by MTO, and the largest even given by the department to Aecon.

“We are notably encouraged by the prospects of Aecon’s road building operations in light of the C$6.2-billion infrastructure Framework Agreement recently signed by the governments of Canada and Ontario,” Mr Bastien, referring to a deal to address the infrastructure needs of the province until 2014.

Mr. Bastien pointed out that despite a “very promising” growth outlook and record backlog levels, the  construction business continues to trade at a discount to its peer group, and says the discount is unwarranted. Aecon’s core business trades at an Enterprise Value/EBITDA multiple of 4.6x to Mr. Bastien’s 2008 estimates, compared to an average of 5.3 for comparable construction firms.

Mr. Bastien has a C$23 target price on the stock, which trades in the C$15 range.