July 23 (Reuters) - SNC-Lavalin Group Inc shares slumped to a 14-year low on Tuesday, as investors worried about the near-term impact of the struggling construction company’s restructuring actions, including plans to exit fixed-price contracts.
SNC said on Monday it would not bid for any fixed-price contracts, calling it the “root cause of the company’s performance issues.”
While analysts broadly agree that SNC’s decisions to move away from fixed price contracts is a step in the right direction, several questioned the lack of clarity related to the plan.
“Changes to operational disclosures, impairment charges and lack of clarity on the extent of problems within the resources segment have contributed towards the stock price decline,” said Nauman Satti, an analyst at Laurentian Bank Securities.
In the first major restructuring under interim Chief Executive Officer Ian Edwards, the company said it would split into two reporting units - one focused on growth areas and the other housing its underperforming resources and infrastructure construction businesses.
The Canadian company also said it would explore options, including a sale of its resources unit, and warned on profit for the third time this year, citing higher project costs.
“Incoming CEO Ian Edwards faces the daunting task of righting the SNC ship at a time when legal uncertainty prevails, political posturing is still hurting the business, project execution risks remain high and employee morale is anything but,” Raymond James analyst Frederic Bastien said.
SNC has been facing a trial in Canada over fraud and corruption charges. The company’s unsuccessful attempts to reach a settlement led to a political scandal engulfing Prime Minister Justin Trudeau.
SNC’s shares, which have halved this year, were down 9.5% at C$21.54.
AltaCorp Capital analysts expect stable and more predictable earnings from exiting fixed price contracts to likely only begin to materialize in 2020 and beyond.
Reporting by Debroop Roy in Bengaluru; Editing by Anil D’Silva
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