Canam Drops Most in Almost Two Years on Unexpected Project Cost

  • ‘Possible the claims can be resolved’ in couple of months: CFO
  • News manageable given strong balance sheet, analyst says

Canam Group Inc. fell the most in 20 months after the Canadian construction company announced an extra C$32 million ($25 million) expense due to revised cost estimates for one of its projects.

Canam, builder of the retractable roof for the Arthur Ashe Stadium in New York, plunged as much as 12 percent, the most since October 2014, to an intraday low of C$11.64. The shares fell 11 percent to C$11.79 at 11:18 a.m. in Toronto, giving the Saint-Georges, Quebec-based company a market value of C$550.7 million. They are down 15 percent over the past 12 months, compared with a 0.3 percent drop in the benchmark Canadian S&P/TSX Composite Index.

The extra cost was taken during the company’s second quarter and has not yet been approved by the client, according to a statement. Canam said its immediate priority is to complete the project on schedule while it works on resolving cost issues with the client. The company declined to name the “significant” project.

“Our relationship with the client is very good,” Rene Guizzetti, Canam’s chief financial officer, said by phone. “It’s possible the claims can be resolved within a couple of months but typically in the construction industry, it takes several months. We don’t know how long the negotiations will go on for right now.”

Balance Sheet

Canam operates around the world with the bulk of their projects in Canada and the U.S., where in addition to the roof for the stadium, which hosts the U.S. Open tennis tournament, it’s building the steel structure for an office tower in Hudson Yards.

Guizzetti said the the charge is a one-time cost and the company is monitoring its other projects carefully. “Most of them are doing very well, though of course, some are a little more challenging than others,” he said.

“While the news is disappointing, it is manageable given Canam’s solid balance sheet,” Gavin Fairweather, analyst at Cormark Securities Inc., said in a note to clients. The extra charges relate to a change in the timeline of the project, resulting in a larger number of subcontractors and transportation inefficiencies than expected, he said. He sets his target price at C$14.

Canam is still set for a strong performance in 2017 with expected earnings growth from better project execution and use of capacity, Sara O’Brien, an analyst at RBC Dominion Securities, said in a note to clients.

The company has one hold and four buy ratings, according to data compiled by Bloomberg. It’s due to post second-quarter results on Aug. 4., with analysts estimating adjusted earnings of 29.5 cents a share, according to four estimates compiled by Bloomberg.

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