SNC Lavalin (symbol SNC)

[Quebec]

SNC is down $10 today, from 48 to 38, the worst drop in 20 yrs
This is a company with billions of dollars in revenues. That $35 million story in the news today just does not seem to justify the price drop... Sure, the 2011Q4 report will be delayed, but I can wait a month. I don't think this company is permanently damaged and is worth 20% less than it was yesterday.
Anyone buying?
(I have a small position already)

[Lazy Ninja]

I'm thinking about it, as I've wanted something in the industrial space to pair with CNR. Whenever I've had cash on hand, SNC's always seemed expensive to me. I was kicking myself for missing it when it touched on $40 a few months ago, then closed at $47 like three days later. I don't care about them missing their 2011 forecast or the uncertainty around their Libya projects. I thought I read today that their business in Libya represents about 6.6% of their revenues, so a 20% drop in share price offsets that and then some. The accounting irregularities and pushing back their scheduled annual results are much more troublesome developments to me.

The reporting I've read on the $35 million strikes me as awfully vague thus far so I'll wait and see, but with equities steadily increasing this year, I'm probably on the sidelines here unless I sell something else or decide to borrow on my LOC. Not sure I want to do that to roll the dice with SNC at this point.

Edit to add: I got a kick out of reading this. The stock drops by $10, he lowers his 12 month target by $7 and reduces it to 'neutral'. He must be pretty damn bullish on equities to give a $38 stock with a $57 target price a neutral rating. WTF?

[Michael D]

Two sides to every trade. There are buyers even now. Look at the overall impact of this news on the balance sheet, and it is pennies..

[AltaRed]

Two sides to every trade. There are buyers even now. Look at the overall impact of this news on the balance sheet, and it is pennies..

The unknown creates fear there may be other monkeys in the haystack. Is this an isolated incident or will the investigation uncover other missteps?

[brad911]

I don't think its too far fetched to wonder if they've completed their own creative accounting.

Its no secret many of their (and other engineering firm) projects are significantly over budget.

Where there's smoke there's....?

I've never looked at the company for longer than 5-10 minutes, but this situation has been a concern for me and likely why I've stayed away from them as a prospective investment.

They generate lots of cash, but that doesn't mean someone hasn't taken liberties....

[Quebec]

From DBRS:

DBRS Places SNC-Lavalin’s BBB (high) Rating Under Review with Developing Implications

February 28, 2012

DBRS has today placed the Senior Debentures rating of SNC-Lavalin Group Inc. (SNC or the Company) at BBB (high) Under Review with Developing Implications. The rating action follows the Company’s announcement today that 2011 net profit would be $80 million or 18% below previously issued guidance and that the Company initiated an independent investigation of the facts and circumstances surrounding $35 million of payments documented to construction projects to which they did not relate.

DBRS recognizes that, by itself, the financial impact of the $80 million decrease in net profit is not material, considering that SNC would still expect to report about $350 million net profit, with strong company-level financial metrics and about $1.0 billion cash on hand (as reported on September 30, 2011). However, we are placing the rating under review because these latest developments could indicate possible deficiencies in the Company’s risk management and project control systems, including those related to offshore projects.

Now the question is what is the scale of these deficiencies... I now agree that its better to wait and see at this stage, even though it could be a missed buying opportunity.

[mpav]

The last few weeks are having me take a closer look at the stock. I was a previous owner but sold out after some large gains and as the yield was not that strong, and as well as it didnt give me much diversification. If you own utilities, brookfield, arent these guys in the same space...although it does give some exposure to mining etc.

I think the ethical point will be the biggest question - how much of that 'stuff' got them deals.

These projects all go over budget, and all have some issues anyone involved with engineering big projects know that you cant forsee every detail when you build airports, mines etc.

[Shine]

Class action shareholder litigation was initiated today against SNC. This might well shift Board focus...and distract the CEO...and turn into an opportunity.

(I doubt the link to the actual detail will work however the home page of SISKINDS has an abbreviated reference under News and Events.)


Link: http://www.classaction.ca/index.aspx

[Soils4Peace]

For an engineering consultant, bribing your way into one market can exclude you from others. For example. Reputation and relationships are a big part of consulting.

[Quebec]

Class action shareholder litigation was initiated today against SNC.

Any chance this suit is sucessful?

[adrian2]

Class action shareholder litigation was initiated today against SNC.

Any chance this suit is sucessful?

Yesterday on the Lang and O'Leary show, Kevin opined that it will be settled out of court in a few years for a max of 10% of the original amount.

[Norbert Schlenker]

Imagine the distress of shareholders in general who realize that any award, in court or by settlement, comes out of their own pockets. Not to mention the deadweight loss of the legal fees.

[kcowan]

Class action shareholder litigation was initiated today against SNC.

Any chance this suit is sucessful?

Yesterday on the Lang and O'Leary show, Kevin opined that it will be settled out of court in a few years for a max of 10% of the original amount.

and that that would be a good outcome. He stated that such lawsuits serve to keep Boards on their toes.

(BTW I find that this discovery is extremely valuable. It would seem that the days of hiding such payments in Enron-like special purpose vehicles are over and that is a good thing.)

(PS Paying bribes? Lord help us! What will come next? Buying politicans legally? Donations to Super PACs?)

(Did you hear that Bill Maher donated $1 million to the Obama Super PAC? He disclosed this on Pierce Morgan Tonight.)

[Lazy Ninja]

This is beginning to feel like an awfully long month. Still no news, since this from their Feb. 28th press release:

The Company is working with its external auditors and legal advisors to resolve all issues relating to the investigation to permit the auditors to deliver their audit report on a timely basis. The Company is working towards announcing and filing its 2011 fourth quarter and year-end financial results as soon as reasonably possible and in any event prior to March 30, 2012.

Probably pointless to speculate, but I can't help but wonder if drawing nearer to their self-imposed deadline without any word thus far is (further) cause for concern. It also occurs to me that 'as soon as reasonably possible' and 'in any event prior to March 30' seem contradictory. Could the results be pushed back further still?

Edit to add: anyone know if they've officially declared their first dividend of 2012 yet? Normally it would be paid in early April. Their investor relations site is currently listing just three upcoming dividends for 2012, on May 31, August 31 and November 30.

[Lazy Ninja]

SNC-Lavalin CEO resigns

Duhaime's resignation comes amid allegations he allowed more than $50 million worth of payments to "agents" in Libya and Tunisia. An internal review ordered by SNC-Lavalin showed that Duhaime authorized payments despite the objections of the company's chief financial officer.

[Quebec]

HERE is a more detailed report of what the company is saying... This is not pretty. One can understand why the CFO was objecting to these payments, because now the company will have some fun dealing with their auditors. I will wait for the annual report to decide what to do with my shares.

“The matter was brought to the CEO [ADDED: Mr. Duhaime], who authorized or permitted [Mr. Ben Aissa - ADDED: a former executive] to make the payments through his division,” the company said. “While the CEO thought he had the authority to do so, he should have confirmed his authority but did not. The CEO’s authorization of these payments did not comply with the agents policy and therefore was in breach of the [company’s ethics] code.”

When Mr. Ben Aissa tried to get approval for the $33.5-million in agency payments, SNC’s chief financial officer and company chairman refused. However, Mr. Duhaime signed off on the payments and allowed Mr. Ben Aissa to make them through his division. The payments were supposed to help secure contracts but the board committee said it “found no direct and conclusive evidence establishing the exact use, purpose or beneficiaries of payments made under the [agreements]”.

Mr. Duhaime also knew that Mr. Ben Aissa had been hiring agents “in unusual circumstances” and that the agent fees were not being charged to the specific projects involved, the company said. Mr. Duhaime didn't see the agreements or accounting entries, “but should have known that contractual documents would refer to projects other than projects A and B and that incorrect entries would be made, which did not comply with the code,” the company said.

[zinfit]

I know its a risky trade .I bought some shares at 41.00. I figure the corruption issues are being dwelt with and the company will move on. It has big backlog of contracts which will generate a lot of revenue and earnings. Its no picnic doing business in many of the world's countries. They got caught up in a messy deal and have paid the price. RBC figures the company has an implied return of 62%.

[ThinkDividends]

RBC figures the company has an implied return of 62%.

RBC lowered their price target to $50 this morning (22% implied return)

[Shakespeare]

RCMP searching SNC-Lavalin headquarters - The Globe and Mail

[Springbok]

RCMP searching SNC-Lavalin headquarters - The Globe and Mail

To compete in the international business they are in, they probably have to play by rules of the game that include bribes and other forms of corruption. Sad but true.

This is still a very strong company and probably a good buy at present price.

[tedster]

Springbok wrote

This is still a very strong company and probably a good buy at present price.

Plus they are "in" with the Quebec situation and those "bribes" will never be caught.

[mpav]

It is indeed a great company, and one I have owned in the past (sold a few years back)....I am tempted to get back in, but with these type of situations I find myself historically buying to early.

Raiding offices is a really bad sign, let the bad news play out longer and I suspect you will get it for even cheaper.

[bpither]

I'll wait until the dust settles whenever that will be. If history is any indication - BP, Shoppers, Maple Leaf foods - when the bad news subsides this stock "should" rise.

[Taggart]

I might consider it........if it gets cheaper.

[tedster]

Taggart wrote

I might consider it........if it gets cheaper.

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