SNC Lavalin Group Inc.’s power division is getting its swing back after the unit scored a key carbon capture project in Saskatchewan.
The Montreal engineering giant won a deal this week to design and deliver a carbon dioxide capture system for SaskPower’s ageing Boundary Dam, a 115 megawatt coal-fired power station near Estevan. SNC will do the work with partner Cansolv, a unit of Royal Dutch Shell. The value of the contract was not disclosed but is thought to be worth $300-million to SNC.
“[The company’s] power division is definitely getting back on its feet,” Genuity Capital Markets analyst Maxim Sytchev writes in a note to clients. “[Carbon Dioxide] technology implementation such as the one contemplated in Saskatchewan should also strengthen [the] company’s growth opportunities given the anticipated capital spend in this end-market.
The power business will represent an estimated 14% of SNC’s total revenues and operating income in fiscal 2010, Mr. Sytchev says. The unit’s backlog at the end of the third quarter 2009 stood at $582-million.
The SaskPower project could capture 1 million tonnes of CO2 per year, which would rank it as one of the first and largest commercial-scale carbon capture projects in the world, adds Desjardins Securities analyst Pierre Lacroix. “We believe such a project should give SNC a strong showcase for future opportunities in this promising market.”
He rates SNC a Buy with a $55 price target. Mr. Sytchev rates the company a Buy with a $60 target.
The engineering firm reports fourth quarter results Friday and analysts are looking for two things: Guidance on 2010 earnings per share growth, and another dividend hike. The consensus estimate is for EPS of 52¢ on revenue of $1.7-billion.