​Aecon poised to gain from SNC Lavalin's retreat from world of builders

Kearl construction. Image: SNC-Lavalin

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 last 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 recent 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.

The challenges prompted interim CEO Ian Edwards to announce last Monday it is “exploring all options'' for its resources division, including selling the flagging oil and gas business.

“Those are tough businesses. They're cyclical. Plus you're typically doing that, at least with their profile, in developing countries, so you've go all the issues that come with that,'' Murray said.

On SNC's retreat from turnkey projects, Aecon's CEO said “it's difficult to say if it is negative or positive'' for his Toronto-based firm, stating that “we have taken good note of SNC's position.''

© 2019 The Canadian Press

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