Have you ever heard of WSP Global (WSP.TO)? Probably not. This “brand new company” (they changed their structure and get a new name in January 2014) is one of the world’s leading professional services firms. They recently entered into an agreement to buy another US firm, Parsons Brinckerhoff for the small bid of 1.2G$.
WSP Global (WSP) Business Description:
WSP Global Inc is a professional services firm, working with governments, businesses, architects and planners and providing integrated solutions across many disciplines. The core of WSP Global comes from Genivar, a Canadian engineer firm that was caught doing “inappropriate conduct” in the financing of political parties in Quebec back in 2012. This was quite a rough period for them and they cut their dividend.
Why should we care about some shady firm which cut its dividend only two years ago? Because the clean-up has been done and the firm is now back in some serious business.
WSP Stock Graph
A quick look at this graph and you get a headache right away. This is not the kind of stock I’m used to picking either. But since I’m Canadian and am well aware of the Charbonneau Commission (which discovers shady political parties’ financing methods), I know why the company took a big dip in revenues and earnings in 2012. During the commission, several firms were removed from the Government approved service providers list.
The dust has now settled and the company is looking forward. As you can see, revenues have never been higher and EPS is back on the uptrend.
WSP Dividend Growth Graph
Then again, the red line going down big time in 2012 is scary. According to my selling rules, I would have dropped this stock in a heartbeat in 2012. But we are now at the end of 2014 and the landscape is completely different.
I selected WSP for our Canadian Dividend Growth Portfolio toward the end of 2013 for a reason: things were about to change for this company. Now, WSP shows a reasonable payout ratio under 60%, a dividend yield of 4.33% and a great acquisition to offer even more stability to their business model. It’s not luck that the stock is up 37% over the past twelve months.
Management’s focus is probably not on dividend growth yet. They clearly mentioned in their 2013 financial statements that the focus was on presenting a solid balance sheet, finding the right firm to buy (done with Parsons Brinckerhoff) and to reward their investors with dividends. Still, at 4.33%, I think you can wait for an increase and appreciate the nice stock ride in the meantime. We also have to mention that WSP offers a DRIP plan.
WSP Global Upcoming opportunities and dangers:
The results in 2013 were strong enough to push WSP to their highest stock price ever. Now, in 2014, the uptrend continues with a strong second quarter announced in August. Net revenues were up 20.2% and EPS up by 37.8%.
The key for 2015 is how well WSP integrates this huge piece that is Parsons Brinckerhoff. In term of revenues we are talking about doubling for WSP (going from 2G$ to 3.8G$), same thing for its work force (going from 17,000 to 31,000). While this seems like quite an elephant to manage, this will also enable WSP to have more diversified revenue streams across the world:
The company was mainly getting its revenue from Canada before the transaction; WSP’s face is completely changing now. It was a great move since they will most likely not cannibalize their own market and simply gain expertise across a wider range.
Through this acquisition, WSP aims at increasing its earnings by 5% right away and 15% once all synergy is completed. Let’s be conservative and aim for an additional 8% once everything is completed. If the normal business continues to grow, WSP is set for a double digit growth over the upcoming years.
We keep seeing more and more infrastructure projects across North America and Europe as all Gov’ts have to invest massively in this sector. This is also great news for all engineering firms. WSP definitely represents a great mix of a dividend paying stock combined with double digit growth.
Disclaimer: I don’t hold WSP in my personal portfolio but WSP is part of our Canadian Dividend Stocks Rock Portfolio.