SNC Lavalin used to be the darling of brokerage firm analysts, garnering almost unanimous BUY recommendations from the Street for a number of years. Then, when it was revealed that a number of employees and officials of the firm were implicated in a bribery scandal, many of the analysts cut bait and ran. According to Bloomberg, seven analysts currently have a BUY on the stock, however six say it is a HOLD and one says that it is a SELL.
The bribery scandal news was serious, and it was not good. However, we at McIver Wealth Management have always believed it was first, and foremost, a governance issue and not an operations issue. During and following a number of investigations, there has been a wholesale replacement of officials at the firm.
Now that those associated with the scandal are gone, operations are once again the focus. That said, yesterday SNC cut their outlook and the stock fell a couple of percentage points. That would suggest that operations are weakening. However, upon closer examination, there are a number of one-time charges which contributed to that negative guidance.
Our Richardson GMP colleague Gareth Watson, appearing on BNN Television, stated that the appearance of one-time charges suggests that management is adamant about “cleaning house” as it move past the scandal. We would agree.
Another one of our holdings, Manulife Financial, went through a similar evolution following a difficult period for the company. Again, a number of analysts became neutral or negative on the stock. We were attracted by their “cleaning house” strategy in that it can provide a cathartic experience for the firm as it says goodbye to the previous regime and absorbs costs associated with old projects and divisions. No one is left to defend or rationalize the previous strategies or mistakes. The new management proceeds unhindered and with an objective and fresh outlook.
It is our hope that Manulife’s resulting good fortune can also be seized by SNC and it moves into a new era.
Both SNC Lavalin Group Inc. and Manulife Financial Corp. are held in the McIver-Jasayko Model Portfolios. Comments about these investments are not intended as advice and do not constitute a recommendation to buy, sell, or hold.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results.
Richardson GMP Limited, Member Canadian Investor Protection Fund.
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