POLITICS

SNC-Lavalin shares don't get bounce from contracts such as Highway 407 extension

03/22/2012 12:27 EDT | Updated 05/22/2012 05:12 EDT
MONTREAL - Overhang from an internal probe into its role in Libya appears to be preventing SNC-Lavalin's shares from enjoying the usual bounce that follows a flurry of contract announcements, including the eastern extension of Highway 407.

The Ontario government said it has selected an SNC-Lavalin (TSX:SNC) consortium as the preferred bidder to finance, build and maintain the first phase of the more than $1-billion highway extension.

Ministry of Transportation and Infrastructure Ontario said the Montreal-based engineering and construction giant's partnership with Cintra Infraestructuras S. A. was selected to extend the four-lane toll road from Pickering to Oshawa.

Highway 407 East will be a publicly owned toll road. The province will operate the highway, set toll rates and retain all generated revenues.

The work to build and maintain the extension follows a string of other contract announcements totalling some $750 million in recent weeks, including a petroleum deal in Venezuela and the $450-million Darlington nuclear station upgrade.

Yet its shares closed down five cents at $38.60 Thursday on the Toronto Stock Exchange.

Frederic Bastien of Raymond James said he remains cautious on the stock until the company completes an internal probe into $35 million of undocumented payments related to its involvement in Libya.

"Judging from the stock’s lacklustre response to the recent thread of high-profile contract wins, the street may be reasoning along the same lines," he wrote in a report.

Maxim Sytchev of Alta Corp Capital said SNC-Lavalin is a great investment with half the trading value of its close U.S. peers.

"With the consensus predictably having stepped away from the name, we view the current SNC-Lavalin valuation as the most attractive since the financial crisis," he wrote.

The new highway's 20-kilometre first phase will connect the electronic toll road to Highway 401 by the end of 2015. The second phase of the 65-kilometre extension will take the world's biggest toll road to Clarington, Ont.

SNC-Lavalin acknowledged being named preferred bidder but declined to provide further details.

"We are not discussing the value of this project and have no further information until the project is awarded," spokeswoman Leslie Quinton said in an email.

Infrastructure and Transportation Minister Bob Chiarelli said the selection is an important step in extending the 108-kilometre bypass around Toronto.

"This project is part of the McGuinty government's long-term infrastructure plan and demonstrates our commitment to creating jobs, strengthening the economy and building strong communities," he stated.

The government agencies say the 407 East Development Group was selected for the 30-year concession agreement in an "open, fair and competitive procurement process."

The cost of the project will be disclosed after a final contract is expected to be negotiated this spring. But analysts say construction alone is valued at more than $1 billion.

The announcement came nearly two weeks after it was leaked by a U.K.-based industry publication.

The winning group was favoured over a team headed by Spanish multinational OHL that included Canadian company Aecon Group (TSX:ARE).

Cintra parent company Ferrovial of Spain is a 43.23 per cent partner in the 407 highway concession, the Canadian Pension Plan Investment Board owns 40 per cent and SNC-Lavalin 16.77 per cent.

The consortium was originally awarded a 99-year concession for the highway in 1999. The first sections were opened to traffic in 1997.