Aecon poised to gain from SNC-Lavalin’s retreat from world of builders

The head of Aecon Group Inc. has voiced his faith in fixed-price contracts after rival SNC-Lavalin Group Inc. signalled an abrupt retreat from the business this week in a move analysts say will work in Aecon’s favour.

Aecon’s share price jumped nearly 10 per cent to close at $21.59 Friday following another high-earning quarter, while SNC-Lavalin’s stock nudged up four cents from its 14-year low of $21 the day before.

“At Aecon, we are builders…it’s our job,” chief executive Jean-Louis Servranckx told investors on a conference call Friday.

“We are not dependent on a subcontracting industry that may overheat during some periods. We have our superintendents, we have our people, we have our workforce,” he said.

Aecon mainly deploys in-house managers and tradespeople on its projects in a ”self-performing” model that allows more control, in contrast to the general contracting approach taken by engineering and construction giants such as SNC-Lavalin.

About 42 per cent of Aecon’s 2018 revenue derived from fixed-price contracts, under which companies have to eat any cost overruns. That share is set to expand, as nearly two-thirds of its backlog revenues are set to come from the so-called lump-sum, turnkey contracts.

Analyst Chris Murray credited the Toronto-based company’s “very disciplined” bidding process and “somewhat unique” self-performance model — as well as a shift away from “social infrastructure” such as hospitals and universities for its success.

“They made a conscious choice to move away from that type of work, understanding that perhaps they weren’t as effective as being able to manage it,” Murray said in a phone interview. “Things like buildings and hospitals, they’re a bit more bid-intensive.”

SNC-Lavalin announced Monday it would quit the field of fixed-price construction contracts and scale back from oil and mining amid a strategic shift to its engineering roots, slashing its profit forecast for the third time this year.

The Montreal-based company, on top of a heavier reliance on subcontracting, has expanded its reach in resource industries over the last few years, but the segment has been plagued with high costs and contract problems.

Aecon

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