Was it overreach when WSP Global’s (CA:WSP, US:WSPOF) CEO Alexandre L’Heureux told participants on last week’s fourth-quarter 2022 conference call that he thinks the engineering firm is ready to compete with the world’s largest management consultants, including McKinsey & Company and Deloitte?
That depends on whether investors believe WSP Global’s profitability is sufficient to compete with the big firms.
“In my mind, we’re not competing against peers in our industries. We’re competing against all the management consulting firms, all of the engineering firms. All the IP (intellectual property) firms. So to me, I don’t like to put WSP into a box and we are already competing with the big four firms in many instances on the advisory side,” L’Heureux told listeners on the call.
In 2022, the company’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $1.53 billion, or 17.1% of its $8.96 billion net revenue. [Figures in Canadian dollars, unless noted otherwise.]
By comparison, Deloitte had fiscal 2022 (May year-end) record revenue of US$59.3 billion, nine times WSP’s when considering the currency exchange. Because it’s a privately held company, it doesn’t reveal its profitability. However, its U.K. business announced a 2021 operating margin of 16.8% based on 4.5 billion British Pounds ($7.52 billion) in revenue.
So, the two firms face similar margins, although Deloitte’s are on a much larger scale. At 16.8%, Deloitte’s global operating profit would have been just less than US$10 billion, $4.7 billion higher than WSP Global’s 2022 net revenue.
At the end of the fourth quarter, the company’s backlog reached $13 billion, 24.8% higher than in 2021, representing 11.8 months or nearly one full year of revenue.
The CEO is very confident about the company’s future in 2023.
“It’s a bit of a schizophrenic environment. You watch the news, you look at the data … you wonder how on the ground it’s being felt in our industry. But I must admit that at this point in time we are not seeing any area of weakness,” L’Heureux said on WSP Global’s conference call.
He did say that the company’s staff turnover is still higher than before the pandemic in 2019 but headed in the right direction. That should help stabilize its operating expense for salaries.
Acquisitions continue to be an important part of its growth. In 2022, WSP Global made six acquisitions, adding approximately 7.400 employees. Its most significant was its purchase of the Environment & Infrastructure business of UK-based John Wood Group plc for $2.4 billion. The unit has approximately 6,000 employees operating in 10 countries from 100 offices.
The company also walked away from a $1 billion deal to buy a British firm called RPS Group after a higher bidder emerged. The CEO believed RPS was fully valued and there wasn’t a good reason to pay more. “You need to stay true to your DNA, to discipline,” L’Heureux said, according to a November feature article in Toronto’s The Globe and Mail.
The company’s organic growth in 2022 was strongest in the U.K., Canada, the U.S. and Australia.
In 2023, WSP Global expects net revenue to be $10.3 billion (15% growth) at the midpoint of its guidance with adjusted EBITDA of $1.8 billion, a 17.5% margin, slightly higher than in 2022. Analysts polled by S&P Capital IQ forecast revenue of $10.5 billion.
The shares are up 11% year to date. It’s slated to pay a $0.375 dividend in mid April, with WSP stock going ex-dividend on March 30. That gives an investor following the Dividend Capture Strategy some time to make a move on the shares. Remember, in order to capture the dividend, you must own the shares before the ex-date. The “record date” on these shares is March 31.
It’s got a long way to go to be in the same league as Deloitte. However, L’Heureux’s ambitions are admirable.
This article originally appeared on Fintel
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