EDMONTON - Chalk one up for Bob Gomes.
When I sat down with Stantec's affable CEO a year ago, after his first 12 months at the helm, the consulting giant's critics were growing louder.
Pounded by recession and a horrible U.S. housing market that had decimated its urban-land (mainly subdivision-planning) division, Stantec was in a bit of a funk.
The 57-year-old firm hadn't completed a major acquisition in more than a year, its formerly high-flying shares were sputtering, and its oncesteady earnings growth had hit a brick wall.
In short, one of Edmonton's biggest homegrown corporate success stories looked like it may have finally run out of gas, a year after former CEO Tony Franceschini's timely exit.
Still, Gomes seemed serenely confident. The clouds would lift, he told me, and Stantec's ship would set sail once again. Deals would come, activity would pick up, earnings would rebound and the company's growth story would resume.
Well, guess what? Gomes was right. Stantec is back on track, and investors are starting to notice.
After completing a flurry of acquisitions last year - 10 in all, raising its total staff count to nearly 11,000 - and sharply reducing its exposure to the obliterated U.S. housing market, Stantec is getting its mojo back.
Net earnings - after accounting for one-time items that skewed yearover-year comparisons - rose about five per cent last year, to $95.3 million or $2.05 a share, handily topping the pre-recession peak of $1.52 a share.
And although annual revenues were flat, at just over $1.5 billion, that masked a major realignment of Stantec's business away from the sagging U.S. housing market and into faster-growing sectors such as mining, oil and gas, and environmental services.
All of which explains why Gomes is confident a refocused and recharged Stantec will beat analysts' consensus earnings estimates of $2.26 a share for 2011 and $2.54 for 2012 -based on the latest numbers from Zacks Investment Research -and why its shares are again on the rise.
Nine of the 13 analysts who track the stock rate it a "buy" or a "strong buy, " according to Zacks, and technical analysts say Stantec's threeyear-long slog through stock market purgatory looks like it's nearly over. Translation: The shares look poised to move higher.
With offices all across the U.S. - a market that now accounts for 40 per cent of Stantec's total revenues - and a listing on the New York Stock Exchange, the Little Company That Could is also gaining increased interest from investors.
Fidelity Investments, the Boston-based mutual fund giant, is among Stantec's three largest institutional shareholders, along with Quebec's Caisse de depot and a fund based in Geneva, Switzerland. Industry competitors are noticing Stantec, too.
"In the U.S., they know who Stantec is. We were asked to speak at the national convention of the American Council of Engineering Companies. It's a huge organization. Every engineering firm in the U.S. is a member, and Stantec was one of just four companies invited to speak," Gomes says.
"They wanted us to talk about our acquisition strategy, and how we've grown to be a large U.S. player.
"We're the only Canadian firm in our space that's done that. SNC-Lavalin would be the largest Canadian engineering firm, but they have virtually no presence in the U.S."
What really gets Gomes excited, however, are the growth opportunities he sees in areas such as Stantec's buildings group, where two key acquisitions last year - Burt Hill Inc. and Anshen & Allen Architecture - vaulted Stantec into the ranks of the Top 5 U.S. architectural firms, and the largest in Canada.
"It will probably take us until the end of 2011 to have our brand fully integrated and really get our client base in North America to understand who we are, so we're really trying to get that message out in a clear and positive fashion this year," Gomes says.
"Anshen & Allen had about 200 people in San Francisco and Burt Hill had about 600 people, mainly in Pennsylvania. But both those firms had a small international component as well, in London, Dubai and India," he adds.
"But the big winner this year is expected to be our industrial practice. We see that growing by five to six per cent, and it's being pushed by (high) commodity prices. We don't do an awful lot of work in the oilsands for companies like Suncor and Syncrude, but we do a lot of work indirectly for major contractors like Worley Parsons, Bantrel and SNC-Lavalin. So if Alberta's economy is hot, we're busy."
Mining is another hot sector. And once again, Stantec gained its toehold through a strategic acquisition.
"We actually have worldwide expertise there through a company we acquired in 2008 called McIntosh Engineering. They do deep, hardrock mining and they are world-class when it comes to doing the underground design, the shaft design and hoist system design," he says.
"So wherever you find the world's deepest mines, Stantec is working on them. The world's deepest mine right now is in Mongolia. It's Ivanhoe's (Oyu Tolgoi copper-gold) project, and we're doing the shaft design.
"We do 60 per cent of our mining work outside North America, and with nickel, copper and gold prices high, the mining companies are absolutely going gangbusters at the moment."
In terms of the big picture, Stantec will remain focused over the next three to five years on the U.S. market, where Gomes still sees plenty of upside, despite America's horrendous fiscal challenges. In Texas, he notes, where the state's gross domestic product is larger than the entire Canadian economy, Stantec has just 60 staffers, versus 6,000 north of the border.
Further out, Stantec expects to focus more on international growth in fast- growing countries such as India, where the need for new infrastructure is enormous. As in its architecture practice, Stantec has already dipped its toes in international markets via the acquisition of U.S. firms with established foreign offices - an approach Gomes sees as low-risk.
"It gives us a good training ground for understanding how to do work in countries with different currencies, different cultures and different business requirements, without really being totally exposed. So it's a safe way of getting our feet wet and understanding what it's like, rather than jumping into a market cold," he says.
"In China there's always the potential for government intervention in business, so we're less interested today in China than India. But it's also partly because we have an Indian presence now, with about 70 people there.
"A lot of our competitors have opened up operations in India to do outsourcing, but that's not the case with us. Our office is a self-sustaining office doing work for Indian clients, so that's something we can grow."
Edmonton Journal
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