Betting on $3.6-trillion market puts WSP Global Inc. atop Canada industrials
WSP Global Inc. is generating the best returns among Canadian industrial stocks after setting itself up to grab a bigger slice of the $3.6 trillion U.S. construction market
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WSP Global Inc. is generating the best returns among Canadian industrial stocks after setting itself up to grab a bigger slice of the $3.6 trillion U.S. construction market.
In buying Parsons Brinckerhoff Group for $1.3 billion in 2014, WSP added U.S. clients including the operator of New York’s subways. For the Montreal-based engineering firm, that means a bigger foothold in rails, bridges and ports after working on buildings such as London’s Shard skyscraper.
“Parsons is going to be a very strong acquisition,” Chris Murray, an AltaCorp Capital analyst in Toronto, said in a telephone interview. “If there was one place I would have wanted to be in, it would have been transportation in the U.S. over the next five years — and Parsons is there.”
The American Society of Civil Engineers estimates trillions will be needed for public works over that span including airports, surface transport and water systems. Some of that funding is poised to flow to WSP because New York-based Parsons Brinckerhoff is working on projects such as California’s planned bullet train and a rail line for New York’s Metropolitan Transportation Authority. The acquisition gives WSP about four times as much U.S. revenue as it had on its own.
“There is a huge infrastructure deficit in the United States,” WSP Chief Executive Officer Pierre Shoiry, 58, said in a telephone interview. “There’s a debate as to how to pay for these investments, but it’s only a matter of time before things get done.”
WSP rose 0.7 percent Thursday to C$41.95, extending its year-to-date rally to 20 percent to lead the 23 companies on the benchmark sub-index of Canadian industrial stocks. That gauge has advanced just 0.5 percent this year.
Among the companies in WSP’s wake is SNC-Lavalin Group Inc., which has slumped 7.6 percent this year as the Montreal- based construction and engineering company fights federal charges of attempted bribery and fraud related to projects in Libya. A spokesman, Louis-Antoine Paquin, said Wednesday that SNC had no comment on the case or the stock decline.
WSP is “purely a services firm,” Shoiry said. “We don’t do construction, and we don’t want to change our business model. With Parsons, we have reinforced ourselves considerably in project management and program management. We think there’s plenty of work for us as is.”
Past projects at WSP include engineering services for London’s needle-shaped, 306-meter (1,004-foot) Shard and the structural design for One 57, New York’s tallest residential high-rise.
In buying Parsons Brinckerhoff from Balfour Beatty Plc, WSP bulked up in transportation and in the U.S. About 60 percent of Parsons Brinckerhoff sales, and 92 percent of its U.S. revenue, at the time of the deal came from the transportation industry. The company’s legacy includes designing New York’s first subway line in 1904.
WSP’s fourth-quarter U.S. sales of C$193 million ($154 million) were 23 percent of global revenue. That makes the U.S. the company’s second-biggest region, trailing Canada’s C$201 million. Excluding the effect of acquisitions, the U.S. business grew 11 percent in the period, topping a 2 percent Canada gain.
WSP has “the assets and geographies that people want to be exposed to,” Maxim Sytchev, a Dundee Securities Corp. analyst in Toronto, said by phone. “They also have very strong execution from the existing asset base. As long as that growth comes in people will be ready to bid the stock up. I think it’s going higher.”
Sytchev’s buy rating on WSP is equivalent to Murray’s outperform ranking. The stock is the sixth-most-recommended among Canadian industrials, according to data compiled by Bloomberg.
Oil remains a trouble spot. Energy-related projects are about 30 percent of WSP’s Canadian revenue, and the global rout in crude prices “will have a negative impact on our performance in Western Canada for 2015 and therefore for Canada as a whole,” Shoiry said on a March 18 conference call. WSP cut an unspecified number of western Canada jobs this quarter, he said. Details will be released when WSP reports first-quarter earnings on May 12, a spokeswoman, Isabelle Adjahi, said by e-mail.
WSP’s most recent forecast suggests that its growth story remains intact. Bolstered by the Parsons Brinckerhoff acquisition, revenue will rise at least 75 percent this year, to a range of C$4.1 billion to C$4.6 billion, WSP said last week.
With Parsons Brinckerhoff in the fold, WSP now employs 32,000 people globally. Shoiry said he will brief shareholders May 21 on a goal disclosed last year to reach 45,000 employees by 2020. He also will provides strategies and objectives as far out as 2018.
WSP may not be finished with acquisitions. It has done two deals since closing the Parsons Brinckerhoff purchase, buying companies in Texas and Colombia, and more are possible, Shoiry said.
“Clearly, the priority is to integrate Parsons, but we have the capacity to do ‘tuck-in’ deals locally,” Shoiry said. “Opportunities are popping up continually. This is a very fragmented industry. There are thousands of companies in the United States, hundreds of firms in other countries. So there is still a lot of consolidation to do in this industry.”
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