Business

SNC Lavalin set to benefit from federal reforms of corruption rules

One of the analysts that covers SNC-Lavalin has upgraded his rating and price estimate for the company's stock as a result of changes to the federal government's procurement policy, announced in last week's budget.

Company threatened with 10 years without government contracts

An analyst says Ottawa has promised changes to its integrity rules, which could be good news for SNC Lavalin. (The Canadian Press)

One of the analysts that covers SNC-Lavalin has upgraded his rating and price estimate for the company's stock as a result of changes to the federal government's procurement policy, announced in last week's budget.

Analyst Chris Murray of AltaCorp Capital said Monday his new target price for SNC shares is $51, up from the previous estimate of $43.

The improved analyst estimate is mainly driven by Ottawa's move to restructure its so-called integrity framework, which automatically imposes a 10-year debarment on companies convicted of bribery or corruption of public officials.

In last week's budget, the Conservative government said it will introduce a new integrity regime for procurements that is "consistent with best practices in Canada and abroad." It will also purportedly ensure suppliers are given "due process and a whole-of-government perspective, which supports transparent competition and an ethical Canadian marketplace."

It wasn't immediately clear when the government plans to make the changes.

Murray says the tone of the budget acknowledges that the current system results in unintended consequences for companies like SNC-Lavalin, which has overhauled its ethics practices.

SNC-Lavalin has said it will plead not guilty to the one fraud and one corruption charge filed in February by the RCMP against the Montreal-based engineering and construction company and two of its subsidiaries over dealings in Libya.

The company says that the charges stem from the same alleged activities of former employees who face criminal charges.

SNC-Lavalin, which reports its first-quarter results and holds its annual meeting on May 7, has warned investors of another difficult year for its core operations.

But industry observers say a federal award of a $3 billion to $5 billion Montreal bridge contract to a consortium that includes SNC-Lavalin, and an impending award by Ontario of the Eglinton LRT transit project in midtown Toronto, should accelerate the company's future earnings.

The planned sale of SNC-Lavalin's 16.8 per cent stake in Highway 407 in the Toronto area is also expected to generate more proceeds that originally forecast.

Corrections

  • An earlier subheadline on this story, which read 'Threatened with 10 years without government contracts, it has reformed ethics practices' has been changed as it seemed to imply incorrectly that the company changed its ethics rules as a result of the threat of losing contracts. In fact, SNC Lavalin changed its rules three years ago.
    Apr 29, 2015 2:28 PM ET

Comments

To encourage thoughtful and respectful conversations, first and last names will appear with each submission to CBC/Radio-Canada's online communities (except in children and youth-oriented communities). Pseudonyms will no longer be permitted.

By submitting a comment, you accept that CBC has the right to reproduce and publish that comment in whole or in part, in any manner CBC chooses. Please note that CBC does not endorse the opinions expressed in comments. Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time.