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March 25, 2016
Dear Fellow Fools,
The big news in Canadian finance this week was, of course, the Federal Budget. Much ink (and opinion) has already been, and will continue to be, spilled on this topic, and frankly, this Fool finds it all rather difficult to conceptualize.
On the personal front, as things stand, I don’t know if I’m better off, worse off, or in the exact same position as I was in prior to the announcement.
From an investment standpoint, however, I do believe there was a clear winner.
As expected, a big chunk of the budget involves sending somewhat of a wall of money towards all things infrastructure related in this country. This has the potential to create a very nice little tailwind behind companies associated with this space, and therefore it behooves us to get up to speed on who may be the primary benefactors.
We’ve identified six publicly traded Canadian entities that are poised to ride this infrastructure wave over the next decade or so, and we’ll spend the balance of this week’s Take Stock making sure you’re aware of them.
The Deal
First though, let’s break down some of the details as they pertain to the announced infrastructure-related spending.
In all, the Liberal government announced that they plan on ploughing a cool $120 billion into infrastructure over the next 10 years. This makes for a reasonably sized pool in which to play.
Details from there get a touch murky, especially if we go out more than a few years; however, Phase I of the plan is supposed to roll out over the next five years and include $11.9 billion of that spend.
The primary targets of this Phase I spend are public transit ($3.4 billion), green infrastructure largely relating to water/waste water management ($5 billion), and social infrastructure ($3.4 billion).
In addition, there are further plans to spend $3.4 billion on federal infrastructure—things such as national parks, harbours, federal airports, and border infrastructure.
Now, again, only the future knows how this is all truly going to play out, but in the near term the companies that we’re about to discuss are going to benefit from the fallout of Phase I. Where things could really get interesting though is when the majority of the spend occurs over the balance of the next decade.
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Potential Beneficiaries
Those with a short-term focus may have lost interest by now. Who wants to wait 10 years for an investment to pan out?
Well, to be frank, we do—put our Stock Advisor Canada team at the head of this list!
We’re all for finding secular tailwinds, and you can be sure we’ll be taking a long, hard look at all of the companies below in the weeks and months ahead. In fact, almost all of them have already come up in past discussions, and currently four of the six reside on our “Watch List” within the service.
Let’s start with the engineering and construction firms as they are likely to be the ones to benefit most directly from the fire hose of funds that’s about to rain down over the coming decade. This collection includes (in no particular order) the following:
SNC-Lavalin (TSX:SNC)
The biggest of the bunch, SNC, is somewhat of a one-stop shop when it comes to engineering and construction. The company’s tentacles are rather vast, though it’s most concentrated on the mining, energy, and power segments. The most likely way it will participate in the infrastructure spend on its home turf is via its capital segment, which focuses on public private partnerships (PPP) involved with such things as airports, bridges, highways, and mass transit systems.
Aecon Group (TSX:ARE)
More focused on the construction end of things, Aecon’s infrastructure development services in particular appear well positioned for what’s to come. In my mind, this is the company that may offer the most direct exposure as about 40% of its current business is derived from Canadian public infrastructure and PPP arrangements. This is more than any of the others on this list.
Stantec (TSX:STN)
Where Aecon is more construction focused, Stantec is tied to professional consulting services that surround the world of infrastructure. Planning, engineering, architecture, interior design … you get the idea. Less hard hats, more drafting tables—or something like that. As far as companies go, Stantec is perhaps the one that I’d favour, but it too is well positioned for this government-sponsored potential windfall.
WSP Global (TSX:WSP)
Similar to Stantec, WSP participates in the professional-services side of the industry. Because of its acquisitive past, however, the exposure here isn’t all that concentrated on the Canadian market. While the company maintains a significant Canadian presence (and perhaps it will become more significant given this announced spending), as it stands, the other three offer more explicit exposure.
Again, for the most direct play on the announced spend, these are probably the most obvious.
There are at least two more companies, however, that I think are worth keeping in your back pocket.
Pure Technologies (TSX:PUR)
Pure is a $271 million market cap company that offers products and services related to inspection, monitoring, and management of physical infrastructure around the world. Mentioned above is the $5 billion that the budget has labelled for water and waste water management, and this seems to fit right into Pure’s wheelhouse.
New Flyer Industries (TSX:NFI)
This is probably the most obtuse of the bunch. New Flyer manufactures transit buses, and it’s included with the $3.4 billion that’s tagged for transit spending in mind. It’s not clear if this spending has more to do with the physical infrastructure, but if new vehicles are part of the mix, New Flyer is very likely to get in on the action.
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Foolish Bottom Line
Consider these little more than spring-training-like warm-up tosses as far more work is required before an investment thesis falls out for any of these companies. Canadian infrastructure, make that potential Canadian infrastructure, is but one small piece of each of the six puzzles presented.
As indicated though, you can be sure that our Stock Advisor Canada team is going to be keeping a close eye on each and every one of these companies. And if you’re keen on this announced infrastructure spend and see it providing the same potential secular tailwind as we do, you’re likely to benefit significantly from joining our service. We’ll be sure to share our thoughts every step of the way and, at the very least, are happy to serve as a sounding board for whatever thoughts on this space you may have.
Click here or on the button above, and you’ll be on your way to signing up!
See you on the inside!
 Foolishly yours,
Iain Butler, CFA
Chief Investment Adviser, Motley Fool Canada
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