March 3, 2010 / 9:45 PM / 7 years ago

Aecon sees growth, higher private-sector spending

* Sees strong growth in 2010, 2011, 2012

* Surprise Q4 loss in buildings division

* Stock drops 1.6 pct to C$13.72 on TSX

By Susan Taylor

OTTAWA, March 3 (Reuters) - Aecon Group Inc (ARE.TO) on Wednesday forecast strong results for 2010 and beyond, but shares of Canada's biggest publicly traded construction company slid after it said its buildings division dragged down quarterly results.

The Toronto-based builder said it expects private sector spending in such industries as the oil sands to recover fully by 2011. That should more than offset any decline in public infrastructure spending as governments wind down stimulus spending.

But shares of Aecon fell as much as 2.7 percent on Wednesday, as investors digested fourth-quarter financial results with weaker-than-expected revenue.

Released late on Tuesday, the results were largely positive but showed a surprise C$16.4 million loss in the buildings division, analysts said.

"Probably people are a bit disappointed in the performance of its buildings division, because that has been dragging the overall profitability of the firm for quite some time," said Genuity Capital Markets analyst Maxim Sytchev.

"Management, in the past, has stated they should be able to hit their profitability targets, but they haven't done so. Clearly, that's a bit of an issue."

After a detailed operations review that considered all alternatives, Aecon said it decided to keep and improve the buildings division, because it is a core market.

Sytchev said Aecon has been unable to deliver targeted 2 percent EBITDA profit margins, well below the 6-8 percent margin from sector leaders, and should consider selling the unit.

Aecon said it wants to capitalize on its market heft and strong balance sheet, with C$340.9 million in cash, to pursue acquisition opportunities and public-private partnership deals.

For the period ended Dec. 31, Aecon said net income fell to C$15.4 million, or 26 Canadian cents a share, as its share count rose to 69.9 million.

It earned C$20.4 million, or 40 Canadian cents a share, in the same period last year. when it had 50.8 million shares.

Revenue fell slightly to C$600 million from C$603 million.

Analysts had expected, on average, earnings of 28 Canadian cents a share and revenue of C$683.7 million, on average, according to Thomson Reuters I/B/E/S.

Closely-watched EBITDA was flat at C$40 million.

"The bottom line is the outlook looks increasingly robust as we look through 2010 and beyond, which makes the stock look even more attractive at current price levels," said Paradigm Capital analyst Corey Hammill. He has an C$18 target price on the stock, which rates "buy".

Aecon said it closed the quarter with a record backlog of C$2.18 billion worth of work on hand, up from C$1.25 billion at the same time last year.

Shares of Aecon closed 1.65 percent lower at C$13.72 on the Toronto Stock Exchange on Wednesday. ($1=$1.03 Canadian) (Reporting by Susan Taylor; Editing by Frank McGurty)

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