WSP Global Inc. (TSX: WSP) offers a cluster of professional services like engineering and design to a wide range of clients across the Transportation & Infrastructure, Property & Buildings, Environment and strategic advisory services etc.

Q2FY20 Financial Highlights: WSP declared its second quarter results, wherein the company reported net revenue of CAD 1,747.1 million as compared to CAD 1,768.6 million in the previous corresponding period (pcp). The decline was primarily attributable to organic contractions in the other segments, partially offset by business growth in the APAC segments. Adjusted EBITDA stood at CAD 276.1 million, reflecting an increase of 4% over Q2FY19. Adjusted EBITDA margin improved to 15.8%, from 15.0% in Q2FY19, underpinned by improved margins from the APAC and EMEIA reportable segments, partially offset by a dip in margins from Canada. Earnings before net financing expense and income taxes stood 13.2% y-o-y lower at CAD 121.9 million, primarily due to inclusion of severance costs of CAD 13.7 million included in the acquisition, integration and restructuring costs. Net earnings, during the quarter stood flat at CAD 88.3 million, as compared to CAD 89.2 million in pcp, supported by a significantly lower net finance expense of CAD 1.2 million, as compared to CAD 21.4 million in pcp. The company ended the quarter with cash and cash equivalent of CAD 711.8 million, while total assets stood at CAD 9,397.1 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The temporary shutdown of certain construction sites and other restrictive measures taken globally have resulted in some delayed projects and may result in further delayed or cancelled projects as the COVID-19 situation evolves.

Valuation Methodology: EV/Sales Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock appreciated ~20% in the last one year, outperforming the index by ~18%. During the end of the second quarter of FY20, backlog stood at CAD 8.6 billion, up 8.3% on y-o-y basis. A backlog is an indicator of future revenue growth. At current backlog, the Company is showing a potential revenue of approximately 11.5 months, which is encouraging. The Company expects its net revenue in between CAD 6.7 Billion to CAD 7.0 Billion in FY20, while adjusted EBITDA is expected between CAD 1,000 million to CAD 1,050 million during the same period. The group expect an organic contraction in revenue from Canada, Americas and EMEIA, which would be partially offset by organic revenue growth from APAC. Investors showed note that the stock has closed above its 200-day simple moving average of CAD 86.32, indicating a bullish trend. We have valued the stock using the EV/Sales based relative valuation approach and arrived at a target price, which suggests a high single-digit upside potential (in % terms). For the said purpose, we have considered SNC-Lavalin Group Inc, Finning International Inc and Toromont Industries Ltd, etc., as a peer group. Hence, considering the aforesaid facts, current price movement, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 86.97 on August 05, 2020.

WSP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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