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WSP Global Inc. (WSP $228.30)
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Stantec Inc. (STN $125.07)
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Aecon Group Inc. (ARE $46.73)
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Bird Construction Inc. (BDT $45.09)
Q: Looking at some of the construction/engineering stocks. Since early summer of 2023, the larger companies STN and WSP are up about 50% and 30% respectively, but the smaller companies ARE and BDT have been massive winners, as ARE is roughly 4 times what it was then, and BDT is roughly 6 times what it was, gains of about 300% and 500%. Is the vast outperformance from ARE and BDT just a case of smaller companies being able to grow faster, or is there something fundamentally different in their businesses? Dol you think that ARE and BDT will continue to outperform STN and WSP?
5i Research Answer:
We do not see anything particularly different with the smaller companies. They do of course have greater leverage to single contracts, and business has been good. The smaller companies are more Canadian-focused (generally) and have seen a boost from Canadian infrastructure spending. In addition, there has been a "stealth" small cap rally, and industrial/cyclical stocks have also staged a big rally in general. We think the sector in general can still do well, but we would be quite surprised if the small caps continued this high degree of outperformance. Still, BDT for example is still slightly cheaper than the large caps.