October 29, 2008 / 7:02 PM / 10 years ago

Aecon shares jump as infrastructure demand builds

OTTAWA, Oct 29 (Reuters) - Aecon Group Inc (ARE.TO) shares surged as much as 20 percent on Wednesday as the construction company built on growing infrastructure demand with stronger than expected results.

Profit jumped 21.5 percent to C$23 million and business backlog grew to C$1.5 billion, Canada’s biggest publicly traded construction and infrastructure developer reported after markets closed on Tuesday.

“The fundamental need to upgrade Canada’s transportation, energy and social infrastructure is as real today as it has even been, not withstanding the current economic instability,” Aecon Chief Executive John Beck said in a statement.

“I believe Aecon’s record backlog and the relative durability of our core markets bode well for continued strong financial performance.”

A global infrastructure boom is under way with an estimated $41 trillion in spending needed by 2030, Canaccord Adams estimated in a research report this spring.

Canada must spend C$123 billion to address its infrastructure deficit and may require another C$115 billion to meet growth requirements, wrote analyst Yuri Lynk.

Forty years of spending declines has resulted in a tired collection of highways, sewer systems, bridges and waste water treatment plants.

A 2003 Engineers Canada report estimates that 28 percent of civil infrastructure in the country was over 80 years old, 31 percent aged between 40 and 80 years, with the remainder less than 40 years old.

With C$221 million in cash, three major infrastructure jobs under way and a big backlog, Aecon is ideally positioned “to pounce” on acquisition targets, Raymond James analyst Frederic Bastien said in a note on Wednesday.

“We maintain a positive outlook on the company and view the recent retrenchment in the stock price as an excellent buying opportunity,” he wrote.

Aecon shares were up 75 Canadian cents, or 12 percent, at C$7.00 on the Toronto Stock Exchange late Wednesday, after touching a high of C$7.49. In the past 12 months, the stock has tumbled close to 60 percent.

Bastien wrote that a 175 percent operating profit gain at Aecon’s industrial unit and 40 percent increase at its infrastructure segment in the quarter more than offset an expected loss at its building group, reflecting writedowns and restructuring.

Aecon said its C$581 million infrastructure backlog grew 34 percent, mainly on road building projects, and its building unit backlog rose 39 percent from the year-earlier quarter to C$618 million. The industrial segment backlog fell 23 percent to C$301 million on declines in Ontario and Western Canada.

Canaccord Adams said in April that Aecon’s size and scope give it a competitive advantage over rivals such as Bird Construction BDT_u.TO and Churchill Corp CUQ.TO. ($1=$1.22 Canadian) (Reporting by Susan Taylor; editing by Rob Wilson)

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