Stantec: Stantec acquires Irish engineering and environmental consultancy

Stantec Inc. established in 1954 and based in Canada, is a global leader in in sustainable engineering, architecture, and environmental consulting. The company's skilled resource pool offers expertise, technology, and innovation to communities to help them manage aging infrastructure, energy transition and address changes in demography and population. Stantec has been ranked as the number one most sustainable engineering firm in the world, as per 2025 Corporate Knights Global 100. Segment-wise, Infrastructure contributed 28% of the 2024 net revenues; followed by Buildings, 22%; Water, 21%; Environmental Services, 18%; and Energy & Resources, 11%. Geographically, the United States leads with 52% of net revenue contribution in 2024; Canda and Global made up of 24% each in net revenues. The company employs around 32,000 professionals, with the United States accounting for 12,000 people; Canada, 9,400; and Global, 10,600. Record high earnings in 2024 The company posted a solid performance in 2024, with net revenue increasing by 15.8% y/y to CAD5.9bn, driven by 7.4% organic growth and 7.5% inorganic growth through acquisitions. All business units demonstrated organic growth, including double-digit growth in the Water and Buildings businesses. However, Energy & Resources posted flat growth over the period. Project margin rose 16.4% to CAD3.2bn, along with an increase of 30bp as a percentage of net revenue to 54.5%, driven by solid execution of projects. Net income therefore grew 14.2% to a record CAD361.5m. Robust order backlog Stantec's contracted backlog surged 24.1% to CAD7.8bn as of December 31, 2024, driven by 8.5% organic growth and further complemented by 9.7% acquisition growth. Organic backlog rose on the back of strong traction in the company's Canada and US operations, with Water posting 24% organic backlog growth. Few major project awards include appointment to Thames Water's £400m asset, capital & engineering framework for AMP8; design 1,000 bed student housing complex for the University of Texas at Dallas; and provide design and engineering services for Silicon Box's €3.2bn semiconductor assembly & test facility in Italy. Encouraging outlook The group expects that the positive business momentum will sustain in 2025, with organic growth expected to be in the mid to high single digits in each of the geographies. Macro factors including aging infrastructure, water infrastructure, data centers and energy infrastructure are expected to support business flow in the United States, while high levels of activity in wastewater treatment, civic and healthcare, and energy & resources are expected to drive business in Canada. Stantec therefore plans to achieve net revenue growth of 7% to 10% in 2025, with adjusted net income as percentage of net revenue above 8.8%. In addition, the group anticipates registering adjusted EPS growth of 16% to 19%, and adjusted ROIC above 12%. Moderation in leverage levels The company posted a revenue CAGR of 9.6% over FY 19-24 to reach CAD5.9bn in FY 24. Operating income outpaced revenue growth with a CAGR of 14.4% to CAD655m in FY 24, with margins expanding by 200bp to 11.2%. Net income therefore grew at a CAGR of 13.2% to CAD362m in FY 24. However, the cash position of the group remained almost flat over the same period, reaching CAD228m as of end-FY 24 from CAD224m as of end-FY 19. This was primarily owing to extensive capex activities over the same time, along with management's focus on reducing the leverage levels. As a result, debt to equity decreased from 83.6% in end-FY 19 to 69.4% in end-FY 24. In comparison, WSP Global, a local peer, reported a better revenue CAGR of 12.6% over FY 19-24 to reach CAD16.2bn. Operating income surged at a CAGR of 21.3% to CAD1.4bn in FY 24. Attractive valuation levels Over the past year, the company's stock has delivered decent returns of about 10%, reflecting a positive fundamental trajectory. In comparison, WSP Global stock outperformed with returns of 16.6% over the same period. In addition, the company paid an annual dividend of CAD0.8 in FY 24, resulting in a dividend yield of 0.7%. Moreover, analysts expect an average dividend yield of 0.8% over the next three years. Stantec is currently trading at a P/E of 25.9x, based on the FY 25 estimated EPS of CAD4.8, which is lower than its 3-year historical average of 33.5x and that of WSP Global, which is trading at 36.5x. Likewise, the company is currently trading at 14x in terms of EV/EBITDA, based on the FY 25 estimated EBITDA of CAD1.1bn, which is lower than WSP Global's 14.5x. However, it is trading higher than its 3-year historical average of 13.8x. Stantec is generally liked by 11 analysts, with 10 having 'Buy' ratings and just one having a 'Hold' rating for an average target price of CAD142, implying 19% upside potential from the current price. Their views are further supported by an anticipated EBITDA CAGR of 10.3% over FY 24-27, reaching CAD1.3bn, with margins of 17.4% in FY 27. In addition, analysts estimate net profit CAGR of 22.4%, reaching CAD663.6m with margins of 8.8% in FY 27, with EPS expected to increase to CAD5.9 in FY 27 from CAD3.2 in FY 24. Likewise, analysts estimate an EBITDA CAGR of 12.2% and net profit CAGR of 27.9% for WSP Global. Stantec's focus on sustainable themes is expected to bolster its order book in the long run. The company is further supported by a positive business trajectory, diverse geographic presence and record earnings performance. However, the group is prone to few risks including project execution challenges, attrition of key talent, and FX volatility. Stantec Inc. established in 1954 and based in Canada, is a global leader in in sustainable engineering, architecture, and environmental consulting. The company's skilled resource pool offers expertise, technology, and innovation to communities to help them manage aging infrastructure, energy transition and address changes in demography and population. Stantec has been ranked as the number one most sustainable engineering firm in the world, as per 2025 Corporate Knights Global 100. Segment-wise, Infrastructure contributed 28% of the 2024 net revenues; followed by Buildings, 22%; Water, 21%; Environmental Services, 18%; and Energy & Resources, 11%. Geographically, the United States leads with 52% of net revenue contribution in 2024; Canda and Global made up of 24% each in net revenues. The company employs around 32,000 professionals, with the United States accounting for 12,000 people; Canada, 9,400; and Global, 10,600. Record high earnings in 2024 The company posted a solid performance in 2024, with net revenue increasing by 15.8% y/y to CAD5.9bn, driven by 7.4% organic growth and 7.5% inorganic growth through acquisitions. All business units demonstrated organic growth, including double-digit growth in the Water and Buildings businesses. However, Energy & Resources posted flat growth over the period. Project margin rose 16.4% to CAD3.2bn, along with an increase of 30bp as a percentage of net revenue to 54.5%, driven by solid execution of projects. Net income therefore grew 14.2% to a record CAD361.5m. Robust order backlog Stantec's contracted backlog surged 24.1% to CAD7.8bn as of December 31, 2024, driven by 8.5% organic growth and further complemented by 9.7% acquisition growth. Organic backlog rose on the back of strong traction in the company's Canada and US operations, with Water posting 24% organic backlog growth. Few major project awards include appointment to Thames Water's £400m asset, capital & engineering framework for AMP8; design 1,000 bed student housing complex for the University of Texas at Dallas; and provide design and engineering services for Silicon Box's €3.2bn semiconductor assembly & test facility in Italy. Encouraging outlook The group expects that the positive business momentum will sustain in 2025, with organic growth expected to be in the mid to high single digits in each of the geographies. Macro factors including aging infrastructure, water infrastructure, data centers and energy infrastructure are expected to support business flow in the United States, while high levels of activity in wastewater treatment, civic and healthcare, and energy & resources are expected to drive business in Canada. Stantec therefore plans to achieve net revenue growth of 7% to 10% in 2025, with adjusted net income as percentage of net revenue above 8.8%. In addition, the group anticipates registering adjusted EPS growth of 16% to 19%, and adjusted ROIC above 12%. Moderation in leverage levels The company posted a revenue CAGR of 9.6% over FY 19-24 to reach CAD5.9bn in FY 24. Operating income outpaced revenue growth with a CAGR of 14.4% to CAD655m in FY 24, with margins expanding by 200bp to 11.2%. Net income therefore grew at a CAGR of 13.2% to CAD362m in FY 24. However, the cash position of the group remained almost flat over the same period, reaching CAD228m as of end-FY 24 from CAD224m as of end-FY 19. This was primarily owing to extensive capex activities over the same time, along with management's focus on reducing the leverage levels. As a result, debt to equity decreased from 83.6% in end-FY 19 to 69.4% in end-FY 24. In comparison, WSP Global, a local peer, reported a better revenue CAGR of 12.6% over FY 19-24 to reach CAD16.2bn. Operating income surged at a CAGR of 21.3% to CAD1.4bn in FY 24. Attractive valuation levels Over the past year, the company's stock has delivered decent returns of about 10%, reflecting a positive fundamental trajectory. In comparison, WSP Global stock outperformed with returns of 16.6% over the same period. In addition, the company paid an annual dividend of CAD0.8 in FY 24, resulting in a dividend yield of 0.7%. Moreover, analysts expect an average dividend yield of 0.8% over the next three years. Stantec is currently trading at a P/E of 25.9x, based on the FY 25 estimated EPS of CAD4.8, which is lower than its 3-year historical average of 33.5x and that of WS