Top Construction companies in Canada
MONTREAL — The Liberal majority is expected to create opportunities for growth in the Canadian infrastructure and construction sector, riding on the newly elected party’s promise to pump in an additional $60 billion over the next decade.
Canada’s biggest players in the sector saw gains on the TSX Tuesday following the Liberal victory, with SNC-Lavalin Group Inc., Aecon Group Inc. and WSP Global Inc. all coming out ahead the day after the election.
The Liberals say they will provide new, dedicated funding to provinces, territories and municipalities focusing on public transit, “social infrastructure, ” which includes affordable housing, child care facilities and recreation areas, as well as green infrastructure and clean energy.
Just last week, Montreal-based WSP closed its acquisition of MMM Group Ltd., one of the largest privately-owned engineering consulting companies in Canada. WSP says the purchase will give the company more exposure in the Greater Toronto Area, where the 2, 000-employee MMM generates 75 per cent of its revenues through transportation, infrastructure, environment and building projects.
Laurentian Bank Analyst Mona Nazir has set targets above the price of every infrastructure company she covers and says that while there are few downsides to the promised injection of funds, it will take some time before it is accurately reflected in the company’s stock performance.
In fact, after making gains Tuesday morning, most Canadian infrastructure stocks cooled by the time the TSX closed.
“The stock price appreciation that we are seeing today is a direct result of the Liberals win. However, we could see some volatility in the coming days especially on the back of financial earnings, ” said Nazir.
“Given the significant impact of the energy and resources sector on the Canadian economy and relatively muted organic growth expectations, investors remain cautious as we head into another earnings season. However increased infrastructure investment is a much needed boost to the economy.”
Raymond James analyst Frederic Bastien says that while the proposed infrastructure spending was the biggest proposed by any of the major political parties, he would be reticent to call it a “game changer” for the industry. “The reality is that all levels of government in Canada have been pro-infrastructure for well over 10 years now, and this is reflected in the world’s most vibrant (public-private partnership) market, ” he said.
Fengate Capital Management is an infrastructure investor with expertise in public-private partnerships, working mostly with Canadian pension plans and represents a group of international investors with an interest in North America. CEO Lou Serafini says that although Fengate has not encountered financing challenges in the past, there have been difficulties with inconsistency in the government delivery of infrastructure projects.
“If the government is consistent about the delivery of infrastructure, you tend to attract better competition and better innovative solution, ” he said. “For us, the Liberal government promise to invest more money into infrastructure creates more opportunities for domestic and international investors.”
The election and promise of investment even gave some upside to construction companies with significant exposure to western Canada’s troubled oil sector, such as Bird Construction Inc., which saw its stock rise 6.85 per cent Tuesday. “New infrastructure will create employment and will offset some weakness in the commodity portions of the economy, ” said Portfolio Management Corp. Managing Director Darren Sissons.
“I don’t think this is going to be immediate, but the problem with the market is that they tend to price gains in immediately.”
Sissons says SNC-Lavalin, for example — a company that Portfolio Management Corp. owns shares in — made gains on Tuesday despite the company’s unresolved litigation. “At a high level I’m not sure it makes a tonne of sense for it to be up right now, ” he said.
During the election campaign, the Liberals pledged to nearly double federal infrastructure investment to $125 billion, even if it means running a deficit for the next three years. However, Sissons warns there could be unintended long-term consequences to running a deficit, such as a risk of “substantial and untamed” inflation.