Canadian firms, pension managers see opportunities in infrastructure spending

MONTREAL – Canadian construction firms and pension fund managers see opportunities from increased federal infrastructure spending, even though projects approved in the last year have been slow to get off the ground.

“The most important part of those announcements is the confidence (it gives) long-term,” Aecon chief executive Teri McKibbon said Wednesday during a conference call about its third-quarter results.

Finance Minister Bill Morneau said that Ottawa will add $81 billion in spending over 11 years, raising total federal infrastructure spending to $187 billion through 2028. The extra funds will be rolled out in 2017-2018 and top out starting in the 2025 fiscal year.

McKibbon said the mix of projects, including mid-sized green initiatives for the electrification of transit, will help the company most.

He said Ottawa’s initial $11.9-billion investment outlined in the last budget has been slower to materialize than expected, with the awarding of many new contracts likely to be deferred into late 2017.

Other Canadian firms expected to win work include SNC-Lavalin, Stantec, Stuart Olson and WSP Global.

“The big question mark to which we do not have the answer is the timing of such projects and corresponding revenues,” Isabelle Adjahi, vice-president investor relations and corporate communications for WSP Global, wrote in an email.

The Montreal-based company expects 2017 will be a year of active bidding with no significant revenues being added before 2018.

Analyst Maxim Sytchev of National Bank Financial said the sheer size of infrastructure spending will help Canadian firms and also attract global bidders.

“Everybody is going to be here,” he said in an interview. “There’s not a lot of other industries right now that are facing such relatively robust spending programs.”

Sytchev urged patience, saying infrastructure projects take time, especially those that will deliver long-term benefits.

He expects infrastructure spending will attract the interest of deep-pocketed private investors and pension fund managers like Quebec’s Caisse de depot, which is developing a $5.5-billion electrified transit project in Montreal.

With sovereign debt generating negative yields and interest rates low, institutional investors are likely willing to backtrack on their historical aversion to construction risk, he said.

“It’s also a function of the times where some of the financial players really don’t have a lot of choice but to start thinking about ‘riskier capital allocations,’ ” he added.

Canada’s largest pension fund manager, the CPP Investment Board, welcomed Ottawa’s announcement but said it is waiting to see the pipeline of infrastructure investments.

“Infrastructure is a very broad concept, perhaps just as broad as any reference to investing in stocks,” senior managing director Michel Leduc said in a statement. “Some stocks are a good fit with our investment portfolio, some less so.”

He also said the proposed Canada Infrastructure Bank has the potential to be a catalyst for investments as they’ve been in Australia, United Kingdom, Chile and United States.

“Because we measure risk-adjusted returns, and we know Canada well, the home market advantage is one we would apply fiercely in what we expect will be a very competitive process with strong interest from global investors.”

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