Aecon moves into fast lane after blocked Chinese bid

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John Beck’s hopes for Aecon Group Inc. to be absorbed by a Chinese construction giant crashed and burned, but just two months later it’s clear that the company did not.

Aecon’s recent financial results beat most expectations, the company is trumpeting a hefty increase in its backlog of new construction and engineering projects, and Mr. Beck – Aecon’s chief executive – says it’s eyeing several more bids for lucrative contracts, many of them for public infrastructure work.

Analysts gushed over last week’s second-quarter showing and bright outlook, and some raised their targets on the stock, which remains well below the price China Communications Construction Co. Ltd. (CCCC) was willing to pay before Ottawa killed the $1.5-billion deal in May.

Mr. Beck had been a staunch defender of the takeover bid by the Chinese state-controlled suitor, saying it would mean an entree into bigger projects and more hiring. Now, he’s sending the message that it’s all yesterday’s news. “I have never been more bullish on Aecon’s outlook than I am today,” he said during a conference call last week to discuss the results.

It’s a bit surprising, considering that for seven months so much of Mr. Beck’s and his executives’ attention was directed at convincing policy makers that the deal would not threaten national security. It was an unusual odyssey, involving efforts to counteract an onslaught of opposition from Aecon’s competitors that crescendoed as the government’s study of the transaction under the Investment Canada Act wore on.

Finally, on May 23, Prime Minister Justin Trudeau’s government blocked the $20.37-a-share offer, citing concern over infringement on Canadian sovereignty, and the shares tumbled 15 per cent. Shortly after, though, Mr. Beck said Aecon’s prospects were bright regardless of the end of a deal that, at first, appeared set for smooth sailing through official channels.

The numbers, so far, back up his assertion.

In the quarter, revenue rose 10 per cent from the year before to $755-million, earnings before interest, taxes, depreciation and amortization (EBITDA) gained nearly 22 per cent to $43.7-million and earnings per share rose to 13 cents from 1 cent. All beat estimates rather handily.

Most encouraging is the $6.4-billion backlog of work, a record for the company. These include big transit projects, such as the Finch West light-rail transit plan in Toronto and Réseau express métropolitain rail project in Montreal. Meanwhile, Aecon is building part of Enbridge Inc.'s massive Line 3 pipeline replacement in Manitoba, and is in a consortium that was awarded BC Hydro’s Site C generating station.

“What we find particularly encouraging, above all, is the high level of continuity in the recent contract wins and the multitude of sectors from which they are derived,” Raymond James analyst Frederic Bastien wrote in a research note. In it, he lifted his one-year target price by $2.50 to $23 a share. The stock closed at $16.16 on Monday. “This, in our opinion, clearly shows that Aecon is the contractor best positioned to profit from Canada’s exceptional market opportunity.”

Despite the recent run of contract awards, Mr. Beck said Aecon still plans to bid for a range of big public works projects, including the $1.4-billion Pattullo Bridge Replacement in British Columbia’s Lower Mainland, the $1.7-billion Surrey, B.C., light-rail transit project and the $4.7-billion Green Line LRT project in Calgary.

The company has the financial and human capacity – bench strength, he calls it – to undertake all the projects. It is working with joint-venture partners in most of the big infrastructure projects, and it has been building up its cash capacity in anticipation.

In addition, the company has appointed a new CEO, European construction veteran Jean-Louis Servranckx, who assumes the post at the start of September. That allows Mr. Beck to step back from day-to-day operations to his role as executive chairman.

Rather than unravelling with a mess that could have followed a failed takeover, it looks as if Mr. Servranckx gets to concentrate on building things, even if they aren’t the global megaprojects envisioned during the CCCC discussions.