MONTREAL – SNC-Lavalin’s new chief executive will be in the hot seat Thursday as he unveils a strategy to move the company beyond improper business activities.
Robert Card will attend his first annual shareholders meeting since taking the reins of the engineering company last October.
The American has been cleaning house since his arrival by replacing key executives and hiring a new compliance officer.
The company has also accepted a 10-year bidding ban from the World Bank for a key subsidiary and affiliates over bribery allegations in Bangladesh and Cambodia.
On Thursday, Card is expected to outline broad strokes of his strategy which analysts expect will involve selling a portion of its lucrative concession assets, or spinning them into a separate public company.
Sara O’Brien with RBC Capital Markets wrote in a note that investors will be looking at value in relation to SNC’s larger concessions like 407 International and AltaLink.
She expects any proceeds would remain with SNC-Lavalin (TSX:SNC) instead of being returned to shareholders because the company doesn’t yet know the magnitude of any fines it may face from current investigations.
The money would also give the company flexibility for acquisitions in its core engineering and construction (E&C) business, including the oil and gas segment.
O’Brien values the concessions at $26 per SNC share — $12 net of tax for the Toronto toll road, $9 for the Alberta electric transmission company and $5 for the rest of the portfolio.
A private transaction would capture the highest value, but an IPO would allow the company to maintain control of its share, collect a management fee and exit when projects like Montreal’s superhospital are completed.
SNC has already provided part of its strategy for the resources and environment group (oil and gas, mining and water) by focusing on growth in certain key markets.
“What we have not yet heard on strategy is regarding SNC’s large infrastructure and power segments,” she added.
The company is also slated to report its first-quarter results.
SNC-Lavalin’s adjusted profit is expected to increase 11 per cent to 49 cents per share, according to analysts polled by Thomson Reuters.
Revenues are forecast to increase 6.4 per cent to $1.9 billion, from $1.79 billion in the prior year.
Maxim Sytchev of Dundee Securities also expects the strategy to involve concessions. But he said alternatives include no change or adding even more of the concession investments that pay SNC-Lavalin dividends and recurring revenues.
“We are not banking on specific divestiture plans, but are simply looking for the path to potential monetization,” he wrote in a report.
Sytchev estimates that $2.8 billion of market capitalization has been destroyed since corruption issues surfaced 15 months ago.
The revelation of $56 million in improper payments to undisclosed agents resulted in the firing of former CEO Pierre Duhaime. He was later charged with fraud, along with former vice-president Riadh Ben Aissa, who is in a Swiss jail.
Since January 2012, SNC-Lavalin’s shares have dropped 20 per cent, compared to a median gain of 16 per cent by U.S. peers.
The shares fell 37 per cent but rebounded 10 per cent since Card’s arrival. On the Toronto Stock Exchange, they closed down three cents to $43.45 in Wednesday trading.
Sytchev said investing in SNC is the cheapest way of “playing the concession game” since 80 per cent of its value reside in concessions and net cash.