Top Picks & Outlook – Michael Sprung on BNN’s Market Call Tonight

Outlook:

Global stock markets generally continued their upward bias in  the third quarter of 2017. This bias was supported by strengthening economic growth in both the developed and emerging economies although at subpar levels compared with traditional recoveries. As central banks have cautiously raised interest rates, bond prices have come under pressure. Wage demands in the developed countries have not accelerated as inflationary expectations have remained low and productivity improvements have been driven by technology. In this environment, central banks may temper their enthusiasm to normalize interest rates and reduce their bloated balance sheets.

Michael Sprung Top Picks Sun Life Financial, SLF, Suncor, SU, Aecon Group, AR

Michael Sprung’s Top Picks: Sun Life Financial, SLF, Suncor, SU, Aecon Group, ARE

Against this backdrop, stock markets have continued to advance. The S&P 500 in the US has hit new highs surpassing levels from before the financial crisis. Valuations have also hit high levels making the search for new investment ideas challenging.

A number of factors could come into play that would precipitate a more meaningful market correction than we have seen in the last ten years. In Canada, concerns are centered around the NAFTA negotiations. Since the Brexit vote and the start of the Trump presidency, a backlash against global free trade has been evident, causing uncertainty in the business community, thus dampening the appetite for capital investment. Other geopolitical factors are also of concern. North Korea’s nuclear threat and heightened discord with the US has been very prominent in the headlines as have tensions in the Middle East, Venezuela, Spain, Russia and the Ukraine. Monetary concerns in Greece,Italy, Spain and Portugal have not gone away.

All of these factors lead us to exercise caution and prudence in our investment stance. Investors have to look hard to find well financed, well managed and reasonably priced companies.

Top Picks:

Sun Life Financial Inc., SLF-T, Owned personally and by clients, Last Purchase February 2016 at $37.20

Sun Life Financial operates in Canada, the US, UK and Asia. Insurance companies will benefit from a rising interest rate environment. We anticipate reasonable growth in earnings over the next few years that should result in expanding dividends. The stock currently yields 3.5% and represents good value in the current environment.

Suncor, SU-T, Owned by clients, Last Purchase March 2016 at $32.94

Suncor is Canada’s largest integrated oil and gas company. Suncor has a strong production base with quality long-term assets, a strong balance sheet, and an integrated business model that smooths to some extent the cash flow from the various business segments. Management has been focused on increasing efficiencies and positioning the company for future growth. Over the remainder of the year, Fort Hills and Hebron will be coming online. Suncor has a strong balance sheet to support and expand operations. At current levels, the stock yields 3.1%.

Aecon Group Inc., ARE-T, Owned by clients, Last Purchase March 2016 at $16.00

Founded in 1910, Aecon Group is one of Canada’s largest construction companies.   Aecon’s backlog in other infrastructure, transportation and nuclear projects has been growing. The more sophisticated projects should result in higher profitability. The environment for increased public spending in Canada is robust. The company has announced that is considering a possible sale that caused an initial bounce in the share price. Since then, the price has receded somewhat giving a current yield of 3.0%. If a sale occurs, we anticipate that it would happen at higher prices.

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The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.

 

Aecon Group Inc (TSE:ARE) wins oil and gas contracts in Western Canada

Canadian construction firm Aecon Group Inc (TSE:ARE, Mkt cap 881.26M, P/E 16.93, Div/yield 0.12/3.21, EPS 0.85, Shares 57.45M) said on Tuesday that it has been awarded two recurring revenue contracts with oil and gas companies in Western Canada.

The deals include a Master Turnaround Agreement (MTA) with Spectra Energy which covers planning, construction equipment, labour, materials and supplies related to shutdown services on natural gas processing facilities in British Columbia. Work commenced in the fourth quarter of 2016 and is planned to be carried out over a five-year period.

The second contract is a Multiple Use Agreement (MUA) with an undisclosed major oil producer in Alberta, covering the period from the fourth quarter of 2016 through to December 31, 2020. The work involves reclamation, overburden removal, mine support services and civil construction activities at all of the producer’s sites in the Alberta oil sands.

Aecon reported a backlog of C$4,551m as of September 30, 2016. Recurring revenue, including these two new contracts, is not included in the backlog.

Welcoming the new contracts, Aecon’s president and CEO, John M. Beck, said: “These recurring revenue agreements provide a predictable revenue stream and added stability for both our Energy and Mining segments. Our continued partnerships with our valued clients are a testament to our reputation as being a trusted, partner-of-choice in an increasingly competitive market in Western Canada.”

On Monday, Aecon announced that Terrance McKibbon was stepping down as president and CEO with immediate effect. McKibbon had held the top position since June 2014, having previously served as chief operating officer.

Beck, the company’s executive chairman, was CEO until June 2014 and has resumed his role as CEO on an interim basis, with Brian V. Tobin becoming independent chairman.

Aecon Group Inc. (TSE: ARE) is a Toronto based construction and infrastructure development company. The Company operates through four segments: Infrastructure, Energy, Mining and Concessions. The Infrastructure segment includes all aspects of the construction of both public and private infrastructure in Canada, and on a selected basis, internationally. The Energy segment encompasses a suite of service offerings to the energy sector, including industrial, construction and manufacturing activities, such as in-plant construction, site construction and module assembly. The Mining segment offers services consolidating its mining capabilities and services across Canada, including both mine site installations and contract mining. This segment focuses on delivering construction services. The Concessions segment includes development, financing, construction and operation of infrastructure projects by way of build-operate-transfer, build-own-operate-transfer and other public-private partnership contract structures. More from Reuters »

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We believe that investment management is about managing risk, not chasing speculative returns. Like to learn more? Please contact us here>>

The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.

 

Aecon Group Expected To Seek Growth Following Quito Airport Sale

Aecon Group Inc (TSE:ARE, Mkt cap 724.22M, P/E 22.32, Div/yield 0.10/3.12, EPS 0.57, Shares 56.16M) has finally come good on the protracted sale of its 45.5% stake in Quito International Airport for US$232 million, which is likely to be met with overwhelming approval from investors.

Aecon Group Quito Airport Sale

Aecon Group Expected To Seek Growth Following Quito Airport Sale

As the Financial Post reports, Aecon has been looking to part with Quito International Airport since it opened in 2013, leaving some to question the Toronto-based firm’s growth potential.

However, analysts believe the higher-than-expected sale, with the Street’s average forecast coming in around $200 million, will bolster’s Aecon’s balance sheet sufficiently enough to allow it bring about some significant change.

Benoit Poirier, an analyst at Desjardins Capital Markets, said that Aecon now has a free rein to pursue public-private-partnership bidding opportunities and emerge as a near pure play in the Canadian construction market.

He pointed out how the company tops the shortlist for a number of large projects which are set to be awarded over the next six months. This should solidify its growing backlog and prospects for EBITDA (earnings before interest, taxes, depreciation and amortization) margin improvements, he added.

“In the medium to long term, we are encouraged by the massive, multi-year opportunity offered by the upcoming nuclear reactor refurbishment in Ontario and M&A opportunities,” Poirier wrote in a research note.

Meanwhile, TD Securities analyst Michael Tupholme is anticipating Aecon to use the sale proceeds to paint a better picture of its balance sheet, while pouring any leftover cash into its P3 project portfolio.

“Although we had no notable concerns about Aecon’s financial leverage, we see the increased financial flexibility that the sale affords Aecon and the simplification of the company’s structure that results from the divestiture of Quito as additional positives,” Tupholme said.

Aecon Group Inc. is a Canadian company involved in construction and infrastructure development. It operates in four segments within the construction and infrastructure development industry: Infrastructure, Energy, Mining and Concessions.

Infrastructure includes transportation sector, including roads and bridges, rail and transit, asphalt production and aggregates and municipal construction; heavy civil sector, including hydroelectric, tunnels, foundations and airports, and social infrastructure including transit stations, industrial site buildings and tenant improvements.

Energy segment includes industrial construction and manufacturing activities, such as in-plant construction, site construction and module assembly.

Mining segment focuses on mine site installations and contract mining.

Concessions segment include the development, financing, construction and operation of infrastructure projects.

What is Successful Investing? Learn more here>>

Download Our Free Special Report – How to Hunt For Value Stocks. Michael Sprung will share with you 5 stocks set for long-term gains here>>

We believe that investment management is about managing risk, not chasing speculative returns. Like to learn more? Please contact us here>>

The opinions expressed here are ours alone. They are provided for information purposes only and are not tailored to the needs of any particular individual or company, are not an endorsement, recommendation, or sponsorship of any entity or security, and do not constitute investment advice. We strongly recommend that you seek advice from a qualified investment advisor before making any investment decision.