Buy this global all-star

We’ve added Montreal-based non-Key stock WSP Global Inc. to our list of 100 Canadian all-star stocks. It replaces MDF Commerce in our portfolio. We view WSP as a buy for long-term share price gains and modest, stable dividends.

WSP Global (TSX—WSP)

Together with its subsidiaries, WSP Global provides engineering and design services to clients in the Transportation and Infrastructure, Property and Buildings, Environment, Power and Energy, Resources, and Industry sectors. It also offers strategic advisory services. WSP also offers highly specialized services in project and program delivery and advisory services. This diversification across customers in various industries reduces its risk.

WSP operates through four reportable segments: Canada, Americas (US and Latin America), EMEIA (Europe, Middle East, India and Africa), and APAC (Asia Pacific, comprising Australia, New Zealand and Asia). This geographical diversification further reduces its risk from natural disasters or geopolitical problems like Vladimir Putin’s war on Ukraine.

WSP is increasingly profitable. In the year to December 31, 2021, it earned $5.09 a share. In 2022, This was up by more than 65 per cent from earnings of $3.08 a share last year. The company’s earnings are expected to jump by 11.8 per cent, to $5.69 a share. Based on this estimate, the shares trade at a hefty forward price-to-earnings ratio of 28 times. On the positive side, WSP’s earnings per share are growing quickly.

WSP’s balance sheet is solid. On New Year’s Eve, its debt totaled $2.797 billion. Subtract cash and destination prepaid expenses of $1.097 billion and the company’s net debt comes to $1.7 billion. Divide this by the cash flow of $1.027 and its net debt to cash flow ratio is less than 1.7 times. That’s within our usual comfort zone of two times or less; particularly given WSP’s diversification by service offering and geography.

President and chief executive officer Alexandre L’Heureux said WSP’s “long-term vision sets an ambitious destination for WSP to become the undisputed leader in the industry with aspirations to double in size”. In 2022 to 2024, “the company expects to increase its earnings per share by 40 per cent”. The company expects to achieve this with “disciplined acquisitions and organic (internally-generated) growth”.

WSP has paid dividends of $1.50 a share in recent years. This yields a small 0.94 per cent. We would like to see the company direct more of its growing earnings to reward its shareholders. It could increase the dividend each year or buy back its own shares. Growing dividends would help shareholders meet the higher cost of living these days. Repurchasing shares would automatically increase WSP’s earnings per share.

This is an edited version of an article that was originally published for subscribers in the April 15, 2022 issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.

The Investment Reporter, MPL Communications Inc.
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