In a period when most global economies are shrinking and companies are fearful about the fallout from Asia’s financial woes, one forward-thinking Canadian company is taking a different approach to grow major revenue: Minaean SP Construction Corp. (MSP.V – TSX) is leveraging its relationship with India-based giant Shapoorji Pallonji Group to build large scale and infrastructure projects in developing and Third World countries. Their strategy is simple and the budding relationship is proving to be a real win-win-win for the parties on all sides.
The question of how to win big budget projects is the challenge for every smaller commercial construction company around the globe. We’re talking companies still toiling in the multimillions as opposed to the hundreds of millions or billions of dollars. With access to big budget projects comes major revenue growth and even greater access. That’s just what Vancouver, Canada based Minaean SP Construction Corp. has tapped into with its new found relationship with multibillion-dollar collaborator, Shapoorji Pallonji Group of India.
Minaean SP was growing a solid track record building Modular Steel Construction projects, and then last year realized that there was a major opportunity working on commercial infrastructure contracts in developing and Third World countries. To carry out projects, Minaean’s management approached India-based Shapoorji Pallonji Group’s Construction arm. The two quickly found the right fit; the smaller Minaean SP needed the expertise, broad network of resources and on-the-ground global capabilities of Shapoorji Pallonji in order to win large and complex construction projects. For its part, giant Shapoorji Pallonji recognized the benefits of gaining access to Canadian and other Government-backed projects that come only as a result of Minaean SP’s unique status as a Canadian construction company. It made perfect business sense.
To give you an idea of the scale of SP Group, the company generated over $3.5 billion in revenue last year with projects all across the Middle East, Africa and Central Asia. It employs some 23,000 people in multiple divisions covering everything from real estate and shipping logistics to bio-fuels and skyscrapers.
The key to this unique relationship was Minaean company founder and Chairman, Mervyn Pinto. The Indian-born Canadian recognized that an arm of the Canadian Government has ongoing mandates to help build infrastructure projects in developing nations and the Third World. These are projects like hospitals, state institutions, hospitality, commercial housing and others. Pinto soon brought the two puzzle to pieces together by uniting projects with government backing through Minaean SP Construction in his home base of Vancouver, Canada.
Since launching its alliance with SP Group, Minaean SP Construction announced its first contract with Shapoorji Pallonji as its strategic partner building the Hilton Hotel project in Sierra Leone. While it’s not as large as some other projects the two are seeking, it is an important contract that cements the relationship and sets the course for projects to come.
Recognizing that it has the ability to go after big budget projects, Minaean SP Construction is bidding a range of projects from Africa, the Middle East and India. According to Minaean, the current pipeline of potential projects is now tipping the $2 billion mark. Based on the size and scale of the projects it is after, it’s not hard to see how Minaean could quickly make the leap from small construction company to a very profitable, large commercial construction machine.
When it comes to out-of-the-box strategy, both Minaean and SP get five stars for taking what is a challenging situation and combining multi-country resources with political know how to simply solve the problems that would otherwise stand in the way.
Ultimately, it is turning out to be a win for both the developing countries who gain new found backing for infrastructure they desperately want and need, and Minaean / SP who gain large contracts and bring in massive potential revenue growth. It’s worth watching to see the development as other contracts come online and how the benefits fall to each of these players in a very valuable, if not almost invisible market segment.
Minaean SP Construction Corp. is publicly listed company that trades on the Canadian Venture Exchange under the symbol MSP.V.
Other notable stocks in the same sector include Argan Inc. (AGX) and Dycom Industries Inc. (DY).
Argan Inc. (AGX) hit a new 52-week high last week, reaching a peak of $47.13. AGX is a small fast growing company in the heavy construction industry, specializing in engineering and construction of natural gas power plants. AGX has a $1.5B project backlog that includes projects contracted through 2019 compared to LTM revenue of $460MM. It’s primary subsidiary, Gemma Power Systems is able to grow significantly with extremely low capital expenditures. The continuing shift in energy share from coal-fired to natural gas-fired plants is expected to increase demand for Gemma Power Systems for many years. AGX also shows a strong balance sheet: zero debt and $319MM in cash & short-term investments, which is about 50% of the market value of equity. The company has been on a consistent path that follows the construction industry’s gradual climb during 2016.
Dycom Industries Inc. (DY) hit a new 52-week high on July 13, 2016, reaching a peak of $97.27. That comes just after the company reported a new lifetime high in the previous week. Dycom Industries Inc provides specialty contracting services throughout the United States and in Canada. Its services includes engineering, construction, maintenance and installation services to telecommunications providers. On 6 July, Dycom Industries Inc. (NYSE:DY) announced that it has completed its acquisition of certain assets and related liabilities used in the current wireless network deployment and wireline businesses of Goodman Networks Incorporated for a cash purchase price of $107.5 million. Apparently the Street liked Dycom’s news; 4 out of 4 analysts following the company rate it a “buy”. Dycom is based out of Palm Beach Gardens, FL and has some 11,159 employees.
Our take: the entire sector appears to have gained some momentum and is worth monitoring, particularly bright spots like the Building Products stocks, which serve as a good indicator. These just posted a 9% year-over-year increase on Q2 earnings. IBD (Investor’s Business Daily) gives the heavy construction industry an “A+” for relative strength, its highest possible rating, making it one of the more attractive industries for investment.
