SNC-Lavalin shares at 14-year low on near-term woes

(Reuters) - SNC-Lavalin Group Inc SNC.TO shares slumped to a 14-year low on Tuesday, as investors worried about the near-term hit from the struggling Canadian construction company's restructuring plans, including a move to exit fixed-price contracts.

FILE PHOTO: A pedestrian walks past the SNC-Lavalin Group Inc., headquarters in Montreal, Quebec, Canada, February 12, 2019. REUTERS/Christinne Muschi

Analysts and investors backed SNC’s decision to end bidding for fixed-price contracts - which the company said was the root cause of its performance issues - but some questioned the lack of clarity.

“I am happy they are going to stop investing in the fixed-price contract, but I am really, really upset as to how they got into this position in the first place and how they screwed up,” said institutional investor David Taylor of Taylor Asset Management, which holds an undisclosed number of shares in the company.

“So it’s like thanks very much for not punching me anymore, I appreciate it, feel so much better, but I’d love to know why they punched me in the first place.”

Laurentian Bank Securities analyst Nauman Satti said changes to operational disclosures, impairment charges and a lack of clarity on the extent of problems within the resources segment had contributed toward the stock price decline.

In the first major restructuring under interim Chief Executive Officer Ian Edwards, SNC said it would split into two reporting units - one focused on growth areas and the other housing its underperforming resources and infrastructure construction businesses.

SNC also said it would explore options of its resources unit, and warned on profit, citing higher project costs.

“Edwards faces the daunting task of righting the SNC ship at a time when legal uncertainty prevails, political posturing is still hurting the business, project execution risks remain high and employee morale is anything but,” Raymond James analyst Frederic Bastien said.

SNC is facing a trial in Canada over fraud and corruption charges. The company’s unsuccessful attempts to reach a settlement led to a scandal engulfing Prime Minister Justin Trudeau.

“I assume he (Edwards) is very strong on the operational side, but it takes a lot more when you are the CEO ... I am not certain he is the right guy for the job,” Taylor said.

SNC’s shares, which have lost 50% of their value this year, were down 9% at C$21.67.

AltaCorp Capital analysts expect more predictable earnings from exiting the fixed-price contracts to likely materialize only from 2020.

SNC declined to comment on the analysts’ reports, saying the reorganization was the first step of the company’s new strategic direction.

Reporting by Debroop Roy and Arathy S Nair in Bengaluru; Editing by Anil D’Silva and Sriraj Kalluvila