WSP Global
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WSP Global
Buy, Grow, Expand. Rinse & Repeat. A Rollup of Engineering and Consulting Firms.
Introduction
At the core of every civilization is infrastructure. You can trace this back to the very earliest records of human civilization; Mesopotamia was one of the first groups of human beings to build and maintain walls around their cities. Greeks and Romans alike had advanced aqueduct systems to provide freshwater to cities and densely populated areas. Roads were the cornerstones of global trade empires and the first movements towards a globally connected economy. Lighthouses were integral to extending those trade connections across the seas and to further reaches than ever before. The list goes on and on, with infrastructure playing a key role in facilitating the advancements and pivotal technologies of every large society.
Our modern era has only seen an increased dependence on different forms of infrastructure as technology improves and global populations expand and shift continuously to denser urban living. Much of the infrastructure has remained the same, albeit with different iterations; roads are paved and cater to cars rather than horse and carriage, but are still integral to a functioning society in most parts of the world. Buildings still house residents and businesses within cities, but often take the shape of towering skyscrapers as opposed to the four-story townhouses considered iconic even as recently as the Victorian era. Some forms of infrastructure, on the other hand, are entirely new; sewage treatment plants, robotic manufacturing plants, and electrical grids are all relatively nascent developments in the broader timeline of human civilization.
Whether modern or ancient in design, infrastructure soaks up huge portions of national and municipal budgets to either maintain/replace aging infrastructure or to build anew in order to accommodate a constantly-growing need for modern infrastructure that is difficult for developers and engineers to keep pace with. Regardless of whether the project is building new or maintaining old infrastructure, it requires a vast workforce to get the job done - there are the construction companies, the drywallers, the demolition teams, the roofers, and countless others, all of whom operate at razor-thin margins to get the job done. And while these teams are crucial to the success of various projects, it isn’t necessarily an attractive industry for investors.
In the background of every one of these infrastructure projects, however, are the incredibly skilled engineers, consultants, designers, and architects that are crucial to creating the optimal design, ensuring projects are completed efficiently, and ultimately delivering value to their customers. And this is an industry within infrastructure that investors can and should be excited about.
While there are many players in this space, most of them completely indistinguishable from the next, one company stands out in terms of quality and yet is seemingly underappreciated by investors. Enter WSP Global (Ticker: WSP.TO), a company with global operations in a wide array of sectors, over 68,000 employees in consulting and engineering roles with multidisciplinary skillsets, and a proven strategy of acquiring and organically growing smaller firms. Let’s dive in.
**Disclaimer: I am not a financial advisor, planner, analyst, or any other certification related to finance. This article, and everything else from Hourglass Investing, is intended for research and entertainment purposes only. Please don’t make any investment decisions based solely on what you read.**
WSP Global
As of Writing:
Market Cap: ~$23.5bn
Gross Margins: 19%
P/E: 46x
EV/Sales: 2x
Revenues: $13.5bn
ROCE: 10.3%
The Company
“For an economy built to last we must invest in what will fuel us for generations to come. This is our history - from the Transcontinental Railroad to the Hoover Dam, to the dredging of our ports and building of our most historic bridges.”
-Cory Booker
Locating one definitive point in history that marks the founding of WSP Global is difficult; with a long history of global acquisitions, reorganizations, and consolidation, WSP’s history is scattered and its timeline into the modern day confusing. As investors, this scarcely matters to us; the short story is that WSP, an engineering consulting firm which was then called Genivar, went public on the TSX (Toronto Stock Exchange) in 2006 after decades of growth through strategic acquisitions and mergers. Starting as a small Quebec-based engineering firm, the company was able to build out a vast toolbox of infrastructure services through this growth strategy, and each tool they added expanded their capabilities to serve various sectors, from transportation and energy to the environment and industry.
And that strategy didn’t stop when they came public; just 6 years later, Genivar acquired UK-based WSP and adopted the brand, reorganizing as the company we know today; WSP Global, a global professional services and consulting firm with expertise in planning, design, management, and engineering across a wide array of infrastructure sectors, including building, transport, industrial, energy, water, and environment sectors. Since going public, shares have steadily compounded at an 18% CAGR, easily exceeding the ~10% mark of the benchmark S&P 500 over that same period. This growth is in large part due to the continued expansion of the business through, you guessed it, yet more acquisitions. This strategy has served them well; today the company has:
Global Presence - Operations in APAC, AMER, EMEA, with over 50 offices globally
Massive Workforce - More than 68K employees (+10.9K in 2022)
Multidisciplinary Expertise - Top 10 ranking in eight markets
WSP’s massive footprint across both globe and industries alike means that, regardless of where you are in the world, there’s a good chance that WSP had something to do with the city skyline you're gazing out on, or the bridge that you traveled on to get to work this morning, or the sewage that your daily constitutional traveled down. It’s a reminder that behind every structure is a team of hands and minds at work to shape our world.
And that’s exactly what WSP intends to do; their guiding vision is to “future-proof” the world’s increasingly populated cities and environments against warming temperatures, rising sea levels, and heightening climate risks. By staying ahead of the trends transforming the world - geopolitical contexts, decarbonization, technology & digitization, and community-oriented solutions - WSP considers the drivers, disruptors, and developments that go into consistently delivering future-proof project outcomes. The company envisions their solutions addressing the growing need for sustainable solutions across industries and facets of society, designing for the future, and ultimately building communities where populations can thrive for generations to come.
Company Grade: A+
“With about 150,000 active projects in a variety of sectors, we view each one as an opportunity to contribute to a low-carbon world and to accelerate the green transition”
-Alexandre L’Heureux, CEO & President
The Business
**NOTE: As we get start getting into the numbers here, I want to point out that all dollar values are in CAD unless otherwise stated**
Canada
17.7% of net revenues (+21.5% YoY)
11.8K employees (+24.2% YoY)
$2.30bn backlog (+26.8% YoY)
$134.3K in net revenues per employee
Americas (Latin America & US)
36.3% of net revenues (+20.2% YoY)
20.5K employees (+28.1%)
$6.32bn backlog (+39.2% YoY)
$158.8K in net revenues per employee
EMEIA (Europe, Middle East, India & Africa)
29.6% of net revenues (+4.9% YoY)
22.5K employees (+11.9%)
$2.85bn backlog (+16.8% YoY)
$117.8K in net revenues per employee
APAC (Asia, Australia & New Zealand)
16.3% of net revenues (+10.3% YoY)
11.4K employees (+17.5% YoY)
$1.53bn backlog (-5.9% YoY)
$128.5K in net revenues per employee
Above is just a quick overview of the various market regions that WSP operates in. Canada & the Americas are the fastest-growing segments and the most valuable based on the revenues generated compared to WSP’s primary cost, which is maintaining their workforce. EMEIA clocks in as the slowest grower and least valuable, though this is a pretty broad categorization of very different regions, so it’s difficult to get a sense of how each individual area is contributing. Purely based on the state of the economies and regional stability, I would take a gander at India and Europe being faster and more valuable growers, while Africa & the Middle East would be detractors. Again, though, this is just an educated guess, and I could not find any more specific information detailing this.
Business Model
The basic business model for WSP is super easy to understand; buy smaller, mostly privately owned firms that offer services adjacent or identical to WSP’s areas of expertise, then fold these acquisitions under their massive umbrella. This is a very fragmented industry - small infrastructure firms are a dime a dozen, so this rollup strategy is brilliant, as long as acquisitions come at fair prices, and it provides advantages for both the buyer and bought.
Firstly, WSP wins on what they’ve added; every acquisition gets them more employees (& those employees’ expertise) to add to their already expansive team. This is the single most important thing they get out of the buying process - more employees allows WSP three things;
Expand geographical reach - if the acquisition is made in a new country, WSP is able to extend their global presence and establish more brand recognition in newer markets. This diversifies their revenue streams and allows them to take advantage of tailwinds in different parts of the world and provides downside protection against the impacts of headwinds in other regions. While they have significant operations in North America, Europe, and Australia/Oceania already, their lower rankings by region (listen in the photo above) in Asia and Latin America suggest these are areas where WSP could continue to make acquisitions and establish their footprint.
Complete more projects & offer niche services/wider use cases - each new team/set of employees has a unique skillset or area of expertise. Given that WSP has a lot of employees already, some of these acquisitions bring in teams with similar skillsets to other WSP employees - for example, if they acquired a structural engineering firm, that team would get added to a large pre-existing pile of other structural engineers. This would allow WSP to complete a greater quantity of structural engineering projects. Some acquisitions, on the other hand, introduce an entirely new and unique tool to WSP’s toolkit - take, for example, WSP’s 2021 acquisition of Smart Navigation, a company that specializes in underwater surveying. This was WSP’s first acquisition of a company offering this service, allowing them to complete projects requiring underwater surveys without contracting outside help.
Save subconsultant costs - Let’s keep rolling with the Smart Navigation acquisition example here. Prior to the acquisition, if WSP was contracted to construct a large pier and needed an underwater survey completed before they could begin the project, they would have needed to hire subconsultants in order to undergo the survey. The entire process of hiring and paying for subconsultants is less efficient than simply having the in-house capabilities to complete the underwater survey, and subconsultant costs are ultimately more of a drag on margins.
Naturally, WSP benefits from more than the employees; they also acquire the assets of the acquired company, as well as their customer base & project backlog, and the revenues that the acquired firm is able to generate. As a consolidator, buying revenues is basically the gist of their entire business model, but WSP’s long-founded expertise in infrastructure industries and their immense pool of resources also allows them to organically grow the acquired firms revenues, and this is where the benefits for the acquired firm come in:
improved operational efficiency through access to systems, software, and more streamlined & established business processes;
access to a huge resource pool
more credibility by working with an established brand
economies of scale for asset procurement
potential to broaden their service offerings through access to a larger group of professionals with varied areas of expertise
The advantages of coming under WSP’s umbrella allow acquired firms to ramp up revenues in a pretty meaningful way, and that organic growth in net revenues is one of the key metrics to watch for WSP. Not only is this an obvious path for top-line growth and efficient operations, but it increases the value they get out of their acquisitions compared to the price they paid for them. For example, if they pay 1.5x EBITDA for a firm, but are then able to grow revs & EBITDA by ~10%, they are getting more value out of the same price.
With all that out of the way, let’s take a closer look at some of WSP’s acquisitions, and afterwards I’ll dive deeper into the specific segments of the business and the services/offerings they provide.
Acquisitions
With a history of more than 60 years of acquisitions and mergers, there are simply too many for me to cover the full range, at least not without writing what would be an exceedingly boring book about it. I’m instead going to focus on the major acquisitions they’ve made over the last 3 years. Since (and including) 2020, WSP has acquired 20 businesses, including 4 in 2023. The most significant of these was the 2022 acquisition of John Wood Group’s Environment & Infrastructure (E&I) segment, their largest acquisition in a number of years. The purchase was made for CAD $2.4bn, financed with a committed term credit facility payable over 5 years.
“[John Wood Group’s Environment & Infrastructure] provides engineering, remediation consulting, environmental permitting, inspection & monitoring, and environmental management services to clients in the government, industrial, infrastructure, oil & gas, power, water and mining industries. E&I operates in approximately 100 offices with approximately 6,000 environmental consulting staff across more than 10 countries.”
-2022 Annual Report
E&I recorded ~$1bn CAD in net revenues in 2021 and $156m in adjusted EBITDA, giving the valuation on the transaction approximately 2.4x sales and 15.4x adjusted EBITDA. These aren’t exactly bargain prices on the surface, but John Wood Group has been in decline for several years. Perhaps WSP is seeing something I’m not and considered this a decent deal on a distressed asset from a company in need of some cash and a re-focus on their core offering. Time will tell on this transaction, but I’d err more on the side of a slight overpay for now. Still, it was a massive purchase, with net revenues of the acquired business coming in at >10% of WSP’s own net revenues.
WSP’s other acquisitions since 2020 were much smaller, and included firms specializing in engineering and buildings, several businesses in the climate & environment spaces (including a climate finance firm), as well as several broader multidisciplinary professional services firms. Below is a timeline for a portion of 2022’s major acquisitions, as well as a few other business achievements.
Segments & Services
All of those acquisitions have built up WSP’s impressive toolbox of multidisciplinary services and offerings. WSP categorizes its various offerings into 4 broad categories of infrastructure; transportation, earth & environment, property & buildings, and power & energy. Within each of these segments, they offer a wide range of solutions to a pretty even split of public and private sector organizations. In addition to direct infrastructure services, they also offering a broad range of more general consulting services, including planning & advisory roles, management consulting, and technology & sustainability advising.
Let’s get a quick overview of WSP’s various business segments and the services offered within them to get a sense of what WSP actually does. You’ll notice, as we go through the various services within each of their segments, that many of them duplicate. Take, for example, a railroad project, which would be categorized under the Transportation & Infrastructure segment; while the project would of course require design & engineering services, it would also require environmental and social impact assessment and planning, a service offered in the Earth & Environment segment as well. And that’s the beauty of WSP’s network of professionals - the projects they’re completing are multi-disciplinary in nature, and so are their teams.
Power, Resources & Industry
Revenues: $737m - 8%
Sectors
Hydropower
Mining
Oil & Gas
Industrial
Energy
Services
Recent Project
WSP was awarded a contract for an industrial project in India, wherein WSP worked with a beverage manufacturer to develop efficient rainwater harvesting. This was important for the customer’s industrial processes, which require water, as India often undergoes drought and periods of sustained dry climates. WSP underwent studies and reviewed the existing rainwater and aquifer designs, then worked with the client to optimize their rainwater harvesting and underground aquifer recharging methods.
The end result of the project was a rainwater collection system that transfers excess water from the roof into the ground (which helps to reduce water overflow and potential damage to buildings), small catchment dams across watercourses that captures water flowing over impervious surfaces and allows it to soak into the ground instead (recharging aquifers), and finally several small well-like excavations that helped to direct water underground more efficiently. While rainwater harvesting may seem a bit mundane, WSP’s efforts on this project help to deliver value to their customer by ensuring the client has access to the resources they need for their industrial processes, in turn keeping the manufacturing plant running smoothly and efficiently. It also saves the customer needing to order water if they run out, which, as they would likely need it in the middle of a drought when everyone and their dog is also trying to get water, would be a huge time-saver and reduce reliance on a potentially hectic supply chain for water.
Property & Buildings
Revenues: $2.3bn - 19%
Sectors
Commercial
Residential
High Rise
Education
Government
Healthcare
Stadiums
Retail
Telecommunications
Services
Recent Projects
WSP is taking the lead on the largest-ever hospital development project in Australia, which is designed to be the first fully electric hospital in Australia. WSP is the primary consultant for all the engineering and design needs on the new hospital, which includes building services, structures, civil engineering aspects, aesthetic, transport, sustainability, acoustics, geotechnical services, and environmental assessment & monitoring.
WSP’s experience with electrified building projects, optimizing for sustainable construction & operation, and designing for a climate-friendly future, as well as their expertise in all the other services required for the project (acoustics, transport, etc.), made them the partner of choice for this project. Their clients were evidently satisfied with WSP’s work, too, as they contracted them out for an eight-week side project which had WSP assessing possible alternatives for site location.
This project perfectly demonstrates WSP’s strategy; firstly a focus on customer satisfaction. Secondly, the benefits of positioning themselves as a climate-focused provider. Thirdly, the payoff of their multidisciplinary approach, in that the client was able to come to them for a wide array of services. Lastly, the immense complexity and importance of the projects WSP is completing. Designing a hospital is incredibly important - errors or inefficiencies in design can put people’s lives at risk. It says something about WSP’s brand recognition that they were not only trusted to do this job, but to complete so many different facets of it.
Transport & Infrastructure
Revenues: $5.39bn - 45%
Sectors
Rail & Transit
Roads & Highways
Aviation
Ports, Marine & Coastal
Tunnels
Bridges & Civil Structures
Services
Recent Project
WSP partnered with other organizations to deliver a section of Sweden’s first high-speed railway system, and was responsible for assessing environmental impacts, acquiring environmental and waterworks permitting, hydrogeological assessments, soft soil geotechnical and rock engineering, and vibrations analysis. They are also managing different portions of the rail, one that heads to Sweden’s major airport and another in an urban area.
Earth & Environment
Revenues: $3.32bn CAD - 28%
Sectors
As almost every project that WSP completes requires some form of earth and environment service, this segment of the business operates in all the sectors that the other segments operate in, from roads and rails to buildings and mining.
Services
Recent Project
WSP has been involved for more than 15 years on a solid waste landfill project in South Africa, where they were initially contracted out as the design engineer and construction manager to develop a former open-pit mine into a landfill site. Another example of WSP’s customer satisfaction, they have continued to work with the client and today help to manage the runoff water generated from biological waste degradation and ensure it doesn’t percolate into the ground. They also installed systems to collect biogas produced from the landfill to divert harmful GHG emissions and produce biofuels for local electricity generation. WSP continues to develop the site, with future plans for composting facilities.
The complexities of the project were significant, making WSP’s multidisciplinary team the right player for the job. Firstly, there was the realization that much of the local community relied heavily on informal recycling for their livelihoods; locals were concerned the new facility would strangle this source of income, so WSP developed a system that allowed the local community to continue generating income from recycling while being protected from potential risks within the landfill. Another large concern was the fact that underground mining was still underway at the mine, requiring very strict engineering and compliance standards to ensure worker safety in the mines and stringent control over water pollution.
Consulting & Advising
For all of the above segments and across the various sectors, WSP also offers advisory services and consulting across design, planning, digital solutions, project delivery, and safety & security measures.
A recent example of a project along this line is WSP’s completion of a TimberX project for the British Columbia-backed Forestry Innovation Investment organization. TimberX was designed by WSP to provide architects and engineers with a platform that allows for direct & simple comparison of timber vs. cement/steel in building projects, with insight into how carbon intensity, cost, bay-weight, structural depths, etc. compare between the different building materials. The goal of the platform is to show that the costs and trade-offs often associated with using timber in building are often misinformed and that timber can sometimes be a cheaper and less carbon-intensive option.
This is a simple example of a consulting and digital solutions service that WSP was able to provide for a client, but these service roles are often directly integrated into wider and more complex projects, like the other project examples discussed above, to ensure value provided to customers and efficiency in WSP’s own processes and those of their clients.
Business Grade: A-
The Team
Teams are always an integral part of any business. For WSP, this is especially true. The management team and its ability to create a positive brand is crucial for a rollup strategy - businesses have to want to be acquired by WSP. If they have a reputation as a terrible company, acquisition targets may simply not want to sell to WSP, and enough companies taking this stance would spell the end of the game for WSP.
Management’s effectiveness also extends beyond brand reputation to the employees as well; they must be able to not only acquire highly skilled employees, but retain them by creating a gratifying and fulfilling work environment that is still highly productive. As a professional services firm working with clients to deliver results, underperforming employees or high employee turnover can result in shoddy work, which in turn can impact the reputation of the company amongst customers. Ensuring that WSP teams are providing high value for their customers must be one of WSP’s top priorities, or else their entire value proposition begins to crumble.
To truly be a strategic partner to our clients we must consistently bring them value through our expertise. This value may be derived from our ability to leverage our global presence and mobility, our market leadership, or our diversity of expertise, allowing for innovative solutions and superior delivery at every phase of the project life cycle.
-Alexandre L’Hereux, CEO & President
In short, reputation and brand power is everything for WSP. Failing to maintain a strong reputation would not only hinder the company’s ability to make acquisitions and continue their strategy for growth, but would also impact their perceived effectiveness with customers, who would then turn to other professional services firms while WSP failed to add projects or recognize revenues. It would be a quick death spiral for WSP if management is unable to ride this fine line. With the importance of an effective team established, let’s take a look at how they chalk up.
While the numbers from Glassdoor don’t necessarily jump off the page and do a dance for you, I’m reasonably impressed by this. 79% approval for the CEO and a 74% rating on the company overall from over 5000 reviews is pretty decent. With larger organizations, it’s inevitable that there will be some unhappy workers and issues surrounding bureaucracy and some employee bloat, so hovering around that 75-80% overall approval rating is okay, so long as it doesn’t fall. There seems to be pretty decent approval of the CEO and the work environment as a whole, and many of the concerns raised through employee reviews were addressed as key initiatives in the company’s Global Strategic Action Plan.
This plan, which is only partly focused on employee engagement, was built based on WSP’s vision for key goals and targets in the coming years and informed partially by the results from a surveys taken from amongst their global workforce. Now, these strategic plans are quite often just a load of corporate hooey, but reading through WSP’s 2019-2021 Plan, they actually smashed most of their targets from that plan, and before that they smashed their 2015-2018 plan, which shows that these plans are actually guiding the decisions and direction of the company.
Their targets, based off the results of the surveys, are a 5% increase in the number of in-house promotions every year, an annual 1% improvement in retention rates, and 75% of leadership positions being filled internally. The company has also started to focus on providing autonomy, agility, and flexibility to their workers, and training and mentorship programs for high-potential employees. These directives should not only help to keep employees happy (and subsequently customers as well) but also show that management is prioritizing both client and employee satisfaction, which is immensely encouraging given the aforementioned importance of both of these factors.
Founders
Christopher Cole, who joined WSP as one of the original founding partners long before the company’s acquisition by Genivar and the subsequent rebranding of the company, is still serving the company as Chairman of the Board of Directors. An engineer by trade, he oversaw the growth of the original WSP from a single-discipline firm of about 200 people to a massive, 9000-person firm serving multiple disciplines and with operations across the world. Cole did all this from his position as Managing Director, which he took over in 1987 and served in until the reorganization with Genivar in 2012, at which time he took over as Chairman.
While it’s always encouraging to have a founder still involved with the business, I don’t think shareholders can really view this as a long-term bonus for the company - Cole is 73 years old, the oldest serving member of WSP, and his 40 years of experience in the industry are probably not going to be with the company for much longer. He is already well past normal retirement age, so his departure could be expected at any time.
CEO
Alexandre L'Heureux, both a CPA & a CFA, has a significant amount of experience working in both professional services firms, having started his career at Deloitte, as well as in leadership positions with companies. After Deloitte he became a VP of operations at a hedge fund, then a CFO at Auven Therapeutics, and finally joined WSP in 2010 as the CFO. He took over the head honcho job in 2016, and the company has done nothing short of extraordinary since; the stock has delivered a 24% CAGR over his tenure (out-performing the pre-L’Heureux period by >10%), the size of the company has grown from less than $4bn to its current size of more than $23bn, and his experience with mergers and acquisitions has helped them add over 80 companies (~11 /year) and more than 50K employees over that same time.
His performance, vision, and execution as CEO has catapulted WSP Global to the company it is today, and he doesn’t look set to stop anytime soon; at just 46 years old, L’Heureux should have lots of time left to continue being an absolute beast as the head of this company. As a side bonus, he is a very dynamic, engaging, and obviously intelligent speaker with a beautiful Quebecois accent. I was really impressed by all the interviews I listened to with L’Heureux; he has an incredible in-depth knowledge of even the day-to-day operations within his company and a very clear (& ambitious) vision of where the company is going, the individual targets they must achieve to get there, and a grounded sense of where their biggest obstacles lie. As far as CEOs go, shareholders could do much worse than L’Heureux - his success over the last 7 years with scaling the company, in combination with his long runway for continuing to head up WSP, earns WSP top grades from me for the leadership aspect of the biz.
Capital Allocation
WSP current capital allocation strategy is clearly still oriented for growth, and focused in a few key areas:
Expanding into new markets
Acquiring new skillsets through acquisitions
Investing in employees
Growing its competitive advantage by offering more services
Integrating digital assets & systems
The focus of these investments would indicate to me that the company is focused both on maintaining high-quality services and on continuing to grow the business through acquisition and organic growth. This is a very balanced and responsible approach to growth, one that I think is very important - while WSP could exclusively focus on acquisitions for faster growth, continuing to invest in the workforce will ensure they continue to add value for their customers and avoid the ‘death spiral’ from a damaged reputation. Even if it comes at the cost of more conservative growth, this is undoubtedly the right call for the business.
That’s not to say they won’t continue to make acquisitions, though - they are clearly focused on building out their competitive advantage as a multidisciplinary firm with a large variety of services & offerings under one roof, as well as on making those services more efficient by adopting software and digital tools. Continuing to add yet more skillsets to this strategy and expanding the number of countries they’re operating in will help not only to continue growing revenues but also ensure they are adding value for customers and staving off competitors to remain a leader in the space. As long as the industry they operate in remains fragmented, there is no reason for WSP to stop making acquisitions, so don’t look for this capital allocation strategy to stop anytime soon.
As a final indicator of the continued growth outlook of the company, one must look to their paltry dividend. WSP started paying a quarterly dividend of $0.375 ($1.5 /yr) in 2013 with an attractive yield of 4.8% and a 98% payout ratio. Today, the company pays a quarterly dividend of $0.375 ($1.5/yr) with a yield of 0.79% and a payout ratio of just 36%. Since installing the dividend, the company has not put a single cent towards increasing it; while it was already in place by the time L’Heureux took over the top job in 2016, it’s clear that he believes money would be better reinvested into the business than it would be growing the dividend return to shareholders.
Personally, I’d actually be much happier if the dividend was cut altogether - I don’t like dividends for a lot of reasons, especially when the company still has lots of room for growth, which I believe WSP does. I think this money would be better spent funding further acquisitions, but I’ll comfort myself that they at least aren’t growing it and have not stated any intention of doing so. However, if you’re a dividend investor, this is probably discouraging news.
Team Grade: A-
The Industry
Total Addressable Market (TAM)
WSP doesn’t release specific data on the size of their total addressable market, so I' branched out a bit towards the architecture and engineering services market as well as the environmental consulting market, given that this is a more specific area they’re looking to expand into.
Infrastructure is important stuff, and pretty broadly scattered across categories, so it’s no surprise that it’s sitting pretty at a massive TAM of $1.4. Not any sort of crazy growth, with a CAGR of 4.8%, but a steady & consistent uptick, helped in part by the tailwinds from certain regions investing more heavily in infrastructure. This huge market also helps to show how fragmented the space is, given that one of the global leaders in the market is sitting at a market cap of only $17.7bn USD, only 1.2% of the total market size. It also demonstrates that, though the market itself is growing slowly, WSP has the potential to grow at a much faster space if they are able to continue consolidating at a decent clip. Let’s also take a look at the environmental consulting market:
Here’s a bit of a growthier market for WSP, though again, nothing crazy. A CAGR of nearly 8% and a 2030 market size of $65bn gives WSP plenty of room to grow into, with only $1bn in total revenues coming from their Earth and Environment segment. I also don’t think the environmental consulting market fully captures the full scope of WSP’s services in their Earth & Environment segment - taking just a few of the other environmental services they offer, like air quality, climate resiliency technologies, and environmental monitoring, I found a market size of about $113.1bn by 2030, in addition to the $65bn from environmental consulting.
While it’s a bit difficult to pin down precisely what WSP’s total addressable market is, I think these are fairly accurate rough figures to represent the huge amount of growth WSP can still achieve in the massive and consistently growing markets they operate in.
Competition
Here are the primary firms I have established as being true competitors to WSP, in that they also provide large-scale, multi-disciplinary engineering & design services and consulting:
Jacobs Solutions
Stantec
SNC-Lavalin Group
Sacyr
Note that, if you’re doing your own research into this, you may find some other competitors pop up. Be sure to check that these other companies are providing engineering services and consulting, as I had several companies come up that were actually construction companies and obviously had some very different comps. Also, I’ll be getting to WSP’s valuation in comparison to their peers in The Investment section, so I’ll focus my efforts here on the actual business performance of WSP vs. their competitors.
On the surface, Sacyr is an interesting play; a Spain-based infrastructure services company that’s trading at a significant discount to its sales figures - a closer look, however, reveals that it’s massively overleveraged and maintains a very risky debt profile.
Jacob’s is definitely a strong comp for WSP, with a more attractive valuation on sales, similar business profiles & global presences, and higher growth in EPS. They, too, pay a dividend yielding .79%, though Jacob’s payout ratio is lower at just 17% (vs. 36%). However, operations are growing much slower than WSP nor have margins enjoyed the same level of expansion either. Nevertheless, I see them as being roughly on par with WSP as a leader in the space - where I give WSP the edge is on the ability and movement towards continuing to expand this leadership edge.
Stantec is the company I view as being the most attractive here, apart from WSP, of course. They have enjoyed strong growth in the business, are a smaller play with more growth runway, and sport very attractive margins. That being said, they don’t have anywhere near the global or multi-disciplinary presence of WSP or Jacob’s - this, to my mind, puts them a step behind as a provider of choice or as a leader in the space. They are the company playing catch-up while the leaders continue to grow.
I’ll be honest, SNC-Lavalin is a crap company, so I’m not even going to give them the time of day. They are constantly mired in one controversy or another, seem to have terrible management, and don’t sport anything near an attractive balance sheet to make up for it. The one thing you could say for them is a more attractive valuation, but if your local business professor is looking for the definition of a ‘falling knife’ investment, point them towards SNC-Lavalin. Maybe, maybe, you could find a turnaround story here, but I prefer leaders and growers, so that’s where I focus my analysis.
Overall, there are three attractive options in the engineering and consulting services consolidator space, and all have their merits. Stantec is a grower, Jacob’s a value play, and a leader, but to my mind, WSP is a growing leader - I think that is the most attractive position for a company in this space, due to the aforementioned defense & offense it provides a company, and therefore where I’ve chosen to park my capital, despite other strong options. I think, however, that given the size of the industry and the relatively small size of these main competitors, there can be multiple winners in this space and that the success of one will not necessarily harm another too significantly.
Industry Grade: A+
The Fundamentals
At a Glance:
Market Cap: $23bn (+20.2% YoY, 5-yr CAGR - 26%)
YoY Revenue Growth: +16%
3-Yr Revenue Growth: +54%
3-Yr EBITDA Margins: +16%
Shares Outstanding: 124.6m (+5.8% YoY)
Balance Sheet: The Good
Well Capitalized
WSP focuses on maintaining a healthy debt profile, even amongst all their acquisitions. Their total debts chalk up around $4.7bn on TTM figures, which is well exceeded by their total assets ($15.3bn) & equity ($6.1bn). The debt/equity ratio is ~0.8, showing they pretty roughly split their financing sources from equity and debt (this keeps them from over-leveraging or over-diluting - I like this balanced approach), and their net debt/adjusted EBITDA, which is one of the more important figures to monitor with WSP (I’ll get into this a bit more in the KPI section), sits at around 2x. Overall, the debt is carefully managed, and management has reiterated their focus on maintaining this risk profile and their conservative approach to leverage & dilution.
Rising Margins & Capital Efficiency
WSP’s various margins, including EBITDA, operating, gross, and net profit margins have all improved incrementally (and considerably) over the last 5 years:
EBITDA - +23.1%
Operating - 31.0%
Gross - +4.4%
Net Profit - +22.6%
This is a really encouraging sign from WSP; they are focused on continuing this strong margin expansion by further focusing on improving operational efficiencies, reducing their real estate footprint, implementing digital assets and software, and incrementally raising prices.
In addition to rising margins, WSP’s capital efficiency metrics have all been on the rise over that same 5 year period as well:
ROIC - +14.3%
ROE - +17.5%
ROA - +20%
ROCE - +16.5%
Overall, solid stuff. Not mind-melting growth on either margins or on the capital efficiency front, but consistent steady uptick in business fundamentals that will continue to make this a more attractive, efficient business that is better able to return value to shareholders over the long-term.
Steady Long-Term EPS Growth
WSP has compounded its EPS at more than 11% for the last decade, and this pace has only picked up in more recent years, with figures of 14% and 23% over 5-yr and 3-yr periods respectively. While this can be choppy, the long-term figures look great and, given the widening margins and rapid growth of the company, doesn’t look set to stop anytime soon.
Faster Revenue & EBITDA Growth
After a few years of slowing growth, WSP’s revenue & EBITDA expansion has picked back up in pace in the last couple years, partly driven by the tailwinds to the industry as a whole. From 2016-2020, revenue growth was no higher than 14% and at one point ticked down as a low as 5%. However, both FY ‘22 & ‘23 figures clocked in over 16%, TTM figures came in over 23%, and the most recent quarterly results recorded a whopping 31.2% YoY growth figure. Revenue growth, and EBITDA concurrently, is beginning to ramp up again as the company benefits from their increased scale and a massive uptick in infrastructure spend, particularly from the United States, as well as from environment & climate spending.
Balance Sheet: The Bad & The Ugly
Choppy FCF
Free cash flow can be very choppy between quarters and even years for WSP, due to both the irregular completion of projects, especially larger multi-year projects, and the various costs associated with acquisitions fluctuating based on the number of firms WSP buys over a period. While this may result in some minor downturns in the stock price for a while, the overall free cash flow trend has been positive over the long-term.
High Stock Issuance
Hardly surprising, given the acquisitive nature of WSP’s business, but they issue a ton of stock to raise capital for M&A. While this is the nature of the game for their core expansion strategy, the amount of stock issuance has increased dramatically in the last few years - from $1.4m in share value issued in 2018 to $885m in TTM figures.
That’s a massive growth figure, though it should be noted that WSP was only sitting at about $7bn in market cap in 2018 - as the company grows, the average size of their acquisitions will grow in accordance (a larger business must make larger investments in order to truly move the needle). With larger acquisitions comes more equity funding and thus more stock issuance. So, again, this is the nature of the beast for most companies in WSP’s boots, but it is still dilutive to current shareholders and something to be aware of if investing in WSP.
Goodwill
WSP's balance sheet showcases a high level of goodwill (approximately $7bn). On the surface, this doesn’t look amazing; high goodwill can be a concern, given that it represents the premium paid over the book value of acquired companies. Also, if acquisitions don’t live up to WSP’s estimates or if projected synergies don’t materialize and the value of goodwill on the balance sheet ends up exceeding the fair value of the acquired asset, WSP would have to write-off an impairment charge, which could impact their earnings.
However, goodwill isn’t inherently a negative indicator, and I’m slightly hesitant to include it on The Bad & The Ugly part of this analysis; while it can lead to damaging impairment charges, it doesn’t have to if WSP is able to organically grow the net revenues of the acquired firm. It also indicates that WSP has been actively acquiring businesses, which is central to their core strategy - so long as WSP isn’t massively overpaying for businesses and can continue their track record of realizing synergies from acquisitions, the goodwill can be justified. It is definitely a metric to monitor though, and ensure there isn’t a significant amount of goodwill escaping into impairment charges.
Key Performance Indicators (KPIs)
Employee Retention Rates
There is a lot of competition for highly skilled technical workers, and given the importance of low employee turnover and overall worker satisfaction to WSP’s reputation and value to customers, it’s therefore important to monitor WSP’s success in retaining workers. The company measures employee retention in voluntary turnover rate; while they have a target of 12% voluntary turnover, they have seen elevated turnover since the pandemic, like many businesses. However, it’s quickly improving, in part due to their employee retention strategies laid out in the 2022-2024 Strategic Action Plan - during the most recent quarterly earnings call, CEO L’Heureux said that they had seen as much as a 5% improvement in voluntary turnover rates, that they were returning to historical trends in this metric, and that the 12% target was still a realistic outcome for them.
Net Debt/Adjusted EBITDA
Net Debt/Adjusted EBITDA is a useful indicator for acquisition companies, as it shows a company’s leverage relative to its EBITDA. WSP measures this metric as the main assessment of their risk profile, which they maintain at relatively conservative levels, and their ability to service debt. A lower ratio may suggest that WSP is not fully utilizing its debt structure and capitalizing on their acquisition strategy. A higher ratio could mean that the company overleveraged itself, which could throw it into a riskier investment profile. Maintaining a fairly steady in-between here is best - they aim to keep Net Debt/Adjusted EBITDA anywhere between 1x-2x (currently it sits at 2x), though are open about the softness of this boundary and their willingness to step outside it for the right investment opportunity. It’s definitely one of the metrics to monitor for investors to ensure WSP is staying fiscally responsible and able to pay off debts.
Organic Net Revenue Growth
This is perhaps the most important metric to follow for investors in WSP. Organic growth tracks the increase in revenue generated from existing operations, excludes growth from acquisitions, and is indicative of WSP’s ability to expand its client base, offer a wider range of solutions, and retain existing customers. High organic growth can also help to drive more value from WSP’s acquisitions if they are able to fold those acquisitions into the organization, realize synergies, and grow the acquired firm’s revenues.
On the other hand, low or declining organic growth may signal larger operational issues within WSP and would certainly hamper the company’s ability to grow outside of acquisitions. If the company is wholly reliant on buying revenues for success, they likely won’t grow very fast or efficiently, and won’t be able to derive as much value from the acquisitions they make. Thankfully, WSP excels in this department. CEO Alexandre L’Heureux has said multiple times that he believes the company to be a better integrator than an acquirer, and the proof is in the pudding:
Save for one down year from COVID, WSP’s organic growth rate has been consistently positive and, but for a few exceptions, quite high. That 3-6% target for 2022 got smashed by a 7.3% figure, WSP’s highest organic growth in more than a decade. Definitely a positive for WSP at current levels, but an important thing to keep an eye on. This is the number one metric that I monitor for WSP - it says a lot about the core business, WSP’s operational capabilities, and its potential for sustainable long-term growth.
Hard & Soft Backlog
The backlog is simply a measure of the value of contracts that WSP has been contracted out to do but has not yet started or recognized revenues on yet due to prior project commitments. Backlog is an important metric to follow for companies like WSP, as it gives investors insight into the future revenue potential of the company once current projects are completed. WSP measures two kinds of backlogs; the hard backlog represents the contracts that WSP has been awarded and received funding confirmation for - these projects are going to happen as soon as WSP can get around to them, and there is usually a deposit of some sort for customers backing out of the agreement.
The hard backlog for WSP, as of the most recent quarter, was approximately $14bn CAD, which was up 25% from $10.4bn in 2021 and +7.7% from $13bn in Q4 ‘22. The soft backlog are those contracts which have been awarded to WSP, but for which the company has not yet received funding confirmation. Once that confirmation is received, the project is a go and it will get added to the hard backlog. While they don’t provide any sort of hard figure on the soft backlog to investors, management did mention on the most recent earnings call that the soft backlog grew around 40% YoY, which is an all-time high for WSP and was largely driven by growth in the U.S.
Defense & Offense
Riding the Green Transition - Offense
With a division of more than 23K workers employed specifically towards environmental solutions, projects across renewable energies and climate resiliency infrastructure, and slightly more than 59% of their total 2022 revenues coming from projects that contribute to the United Nations’ Sustainable Development Goals, WSP has positioned itself well to capitalize on current societal trends towards decarbonization, ESG, and environmental sustainability.
Their vision of future-proofing all infrastructure, climate, & engineering projects, as well as of designing for a world that is actively combatting climate change, has them at the forefront of an environmentally-oriented movement that, while certainly beginning to take shape now, will likely continue to play a progressively bigger role in society and infrastructure especially into the future. And they are walking the talk, too - they have significantly reduced their own GHG emissions from operations and aim to continue doing so through their 2022-2024 Strategic Action Plan.
Now, you can say what you want about the sustainable development goals and ESG as a whole, but this does provide some benefits to the company nonetheless. For those businesses looking to have projects completed while also wanting to be seen making strides on ESG, partnering with an established & award-winning (more on this later) ESG player to complete the project is a good look. Furthermore, it will help WSP attract lots of young talent that is just entering the workforce, cares about the environment, and want to work for a reputable company that is actively working to improve climate change. Like I’ve said, branding is everything for WSP - and making sure their brand image stays up to date with the trends is a good thing.
Increased Infrastructure Spend - IRA, IJA/BIL - Offense
While WSP has strategically positioned themselves to benefit from the tailwinds of a global trend towards sustainability and climate spending, the tailwinds from several massive acts getting signed in the U.S. benefit WSP in more of a ‘right time, right place’ sense; the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL), both signed under President Joe Biden’s leadership, are set to invest pretty substantial sums of money towards infrastructure and clean energy. Due to a mixture of grants, loans, rebates, incentives, and other investment structures, estimates vary on the exact funding amounts and allocations, but some estimates have the IRA investing up to:
$372bn in energy
$183bn in manufacturing
$28bn in building retrofits and energy efficiency
$436bn in transportation
$22bn in air pollution reduction
$3bn in agriculture
The Bipartisan Infrastructure Law, also called the Infrastructure Investment and Jobs Act, seeks to contribute huge sums of money towards infrastructure sectors as well:
$108bn for public transportation
$55bn to expand access to clean drinking water
$65bn in broadband infrastructure deployment
$110bn to repair roads and bridges
$89.9bn in public transit over the next five years
$17bn in port infrastructure and waterways
$25bn in airports for repair, maintenance, and reduced emissivity
$66bn in additional rail funding
$7.5bn to build out a national network of EV chargers
$65bn investment in clean energy
$50bn to protect against droughts, heat, floods and wildfires
$21bn in clean up & environmental reclamation
Are you noticing a trend here? There’s two, in fact. Firstly, WSP’s broad array of services address every single one of these sectors, which means they stand to benefit massively from the passing of these acts. Secondly, these are all ESG-focused; here again, WSP benefits from being a trusted and established leader in providing climate & environment services. Their experience in delivering future-, community-, and climate-focused projects may help to distinguish them as one of the most value-additive providers of professional services over the coming years as the ball gets rolling on these investments and dollars start to flow into project completion. Management expects that the benefits of these projects are set to peak around 2024-2025, so the best is truly yet to come on this front.
Global Strategic Plan - Offense
Released in March 2022, WSP set out its larger strategy, direction, and goals in the Global Strategic Plan, as well as more focused business targets for achieving these goals. In the plan, they set out their intent to double the size of the company (in market cap), grow net revenues by more than 30%, adjusted EBITDA by 40% (+adj. EBITDA margins of >20%), and adjusted net EPS by 50%, all by 2024, by focusing on agility and simplified processes, and by investing in & integrating digital tools. These are pretty lofty goals, but their track record with smashing their previous Global Strategic Plans are encouraging signs that they’ll be able to achieve this growth.
Expertise in Wide Array of Services & Offerings - Defense & Offense
WSP offers a huge and industry-leading portfolio of services across multiple disciplines. While there are many competitors that will be able to offer more niche engineering services or professional service consulting, it’s a rare few companies that are able to match the wide array of services and offerings that WSP does. This one-stop-shop expertise across industries that customers can get from WSP helps to set them apart from the competition, and makes them a provider of choice for customers, particularly those looking to complete multi-phase, multi-faceted, complex projects. This helps to defend their market position and potential customers from competition, with just a sprinkle of offense in there by helping to attract more clients.
Capital Requirements to Compete - Defense
WSP has some strong defense just through the sheer size and global scale of their operations, and the immense amount of capital that would be required to build out something of equal size. While this doesn’t necessarily defend them against current competitors, it provides a lot of protection against any newer entrants in the space, who would have to invest significantly to try and replicate an organization of WSP’s size and talent pool.
It would also require a lot of time to do so, as acquiring so many businesses overnight is simply not possible without taking on a risky debt profile - that would be most unwise, as a newer entrant would also be experiencing the growth pains of scaling so fast. My pops always told me, “be sure to only do one dumb thing at a time”, and over-leveraging while still figuring out how to scale & operate efficiently would be the definition of doing two dumb things at once. While the competition is busy playing catch-up, WSP’s commitment to further growth and improving their competitive edge will only continue to give the company a wider lead. WSP’s scale, a result of the time and capital invested in the industry, is a strong defense against new competitors.
Fundamentals Grade: A+
The Investment
P/E - 46x
EV/S - 2x
PEG - 4.1
EV/EBITDA - 17x
Valuation
By almost every standard, WSP doesn’t come cheap. While the valuation on a revenue basis doesn’t seem outrageous, they also don’t grow their revenues at outrageous levels, so this is warranted. They clock in at a pretty eye-popping 46x earnings, and the growth in their EPS doesn’t warrant this lofty valuation either - calculating the growth in EPS since 2018, I get a CAGR of ~11%. I pump this into the calculation for P/E to growth and come out with a PEG ratio of 4.1, which is lofty in every sense of the word.
Furthermore, the stock is trading at elevated prices based on historical averages on EV/S, EV/EBITDA, EV/FCF, P/E, and P/B, other than the outlier year that was 2021 for pretty much every stock. Keep in mind, however, that this isn’t without reason - over the same period that valuation has creeped up, so have gross, operating, and EBITDA margins, while revenue growth has quickened and capital efficiency metrics have improved concurrently. So, yes, it is more expensive but the higher expense is warranted - the core business has improved; shareholders are rewarding it for this improvement. There are also several catalysts for investors to be willing to pay a premium that were not existent even just a few years ago; management’s targets of doubling the size of the company and growing net revenues & adjusted EBITDA by more than 30%, for one, and the huge tailwinds from infrastructure investments in the U.S., for another.
Finally, comparing WSP to the valuation of its peers, it is more expensive on nearly every front (revenues, earnings, EBITDA, FCF, etc.). It also has the fastest-growing revenues and EPS by a wide margin (save against Jacobs Solutions on an EPS basis), so this may be warranted. In summary, WSP is not cheap. But it is high quality, and the company’s vision for their future, the brand power, the tailwinds it’s experiencing, and its growth (+ the quality of that growth) may prove the price warranted. Nevertheless, it is certainly not a value play.
Analysts
Low: +5.3%
Average: +10.2%
High: +13.7%
Not anything mind-melting here on analyst expectations based on current prices, but this isn’t the sort of business you should be expecting mind-melting growth from anyways - this is a steady compounder. Though the low target doesn’t generate market-beating returns, for the long-term investor that isn’t constrained by having to beat the market, this doesn’t have to be too much of a consideration. Nevertheless, the stock is trading at all-time highs, which isn’t without some downside risk.
Interestingly, analysts (who are often the most risk-averse) are rating the stock a Strong Buy at current prices. I’ll give my usual disclaimer here that, though they are experts, they have very short-term-oriented viewpoints and can be just as wrong as the next human. So play it safe and take their ‘Strong Buy’ as a ‘Make Your Own Decision’.
Risks to Share Performance
Over-leveraging
While WSP to date has maintained a healthy risk profile on their debts (hovering anywhere from 0.1x to 2x net debt/adjusted EBITDA), overleveraging for a large acquisition may place them at a more risky investment grade that could spook more conservative institutional investors. It could also result in reduced financial flexibility, increased interest costs, and a damaged credit rating. In that case, the shares could face some short- to long-term headwinds as they work to write that debt off the balance sheet. However, WSP has committed to maintaining an investment-grade profile, and given their experience with acquisitions, I don’t see this as a particularly likely risk.
Impairment Charges
In addition to the risks associated with overly large acquisitions, overpaying for an acquisition could lead to impairment charges if the value of the goodwill on the balance sheet exceeds the fair value of the asset. This could lead to reduced earnings, as discussed above, but could also damage sentiment around the stock - writing off massive impairment charges is basically just a fiscally painful way of admitting a mistake, which could damage investors opinions on management’s ability to be good acquirers, which, when you’re a serial acquirer, can be problematic. This is always a risk with acquiring businesses, but again, for a company so experienced with acquisitions, I don’t think it’s a highly likely risk.
Overvaluation
As discussed, WSP is pretty richly valued on an earnings front, trades at historically high levels, and is more loftily valued than its peers. As also discussed, this valuation comes on the heels of WSP being the fastest grower of the bunch and with several improving metrics (maybe) warranting the higher valuation. However, if they were to record a quarter or two where those metrics began to decrease again, or growth slowed down, the share performance could take a larger-than-normal tumble.
Red Flags
Not a Lot of Insider Buying
High PEG Ratio
Expensive Compared to Peers
Green Flags
Consistently Award Winning
While these awards don’t necessarily generate more revenue, they provide an intangible benefit that is easy to overlook when getting lost in the weeds of a balance sheet. Not only does this recognition increase WSP’s brand awareness and reputation within the industry and amongst potential customers, but it also creates a work environment that employees can be proud of being a part of, and that sort of fulfillment can often go as far as good salaries.
Industry Mover in Sustainability by S&P Global
WSP Listed #6 in Best 50 Corporate Citizens Canada
2nd year running
No. 1 position in Engineering News-Record’s (ENR) annual list of Top 225 International Design Firms
3rd year running
Leader in Climate Change Consulting - Verdantix Green Quadrant: Climate Change Consulting 2023
Five-star rating for Climate and ESG Impact Leadership - Environment Analyst
Under-appreciated Stock & Insider Ownership
According to WSP’s own internal analysis of ownership status of the company, insiders only own ~1% of the total share count. While this isn’t eye-popping, for a company trading around $24bn CAD, $240m in stock being owned by management is still a pretty decent amount.
Furthermore, and even more of a green flag to me, is that the company is seemingly underappreciated by the wider market; ownership is pretty evenly split between two large Canadian pension funds, individual investors, and institutional holders. Individual investors can find an edge when shares are overlooked by institutions, so this is encouraging. Even more so is the fact that there is almost no ownership from the States - WSP is mostly owned by Canadians. If the company is successful in executing its growth strategy, the larger funds and institutional analysts will come a-calling as the brand gains more recognition, which will in turn drive up the valuation, a potential reward to those shareholders who get in prior to widespread recognition, if it comes.
Investment Grade: B+
The Short Story
WSP is a clear leader in the infrastructure consultancy space - the company has one of the most diversified platforms for catering to a wide array of infrastructure sectors and project settings, has one of the most globally diverse operations across primarily stable OECD (Organisation for Economic Co-operation and Development) markets, and is a recognized leader across both industries and regions. The scale of their services and offerings, both across geographies and disciplines, makes WSP one of the most value-additive “one-stop-shop” players in the space.
Their primary business segments are Earth & Environment, Transportation & Infrastructure, Property & Buildings, Power & Energy, and Industry, which they operate in the Americas, APAC, and EMEIA regions. The fastest-growing of these is the Americas, largely driven by geopolitical tailwinds. The company’s wide array of services, driven largely by an impressive history of acquisition and organic growth, generates a ton of brand recognition, which is one of WSP’s most important assets, along with their team of employees.
WSP’s balance sheet is well maintained - the management team and CEO Alexandre L’Heureux (by trade a CFA & CPA who has crushed the job since taking over in 2016) are fiscally balanced in their approach to acquisitions, ensuring to maintain an investment-grade risk profile while not passing up on attractive acquisitions, large or small. They have begun to grow revenues at a faster clip, their margins and capital efficiency metrics have incrementally but steadily improved over the last number of years, and their long-term EPS and free cash flow trends are overwhelmingly positive.
The industry that WSP operates in is attractive as well - infrastructure is so important to our everyday lives that it is nearly constantly being invested in around the world. WSP’s global presence also helps to ensure that they are constantly benefitting from regional tailwinds, wherever they may be - i.e. the U.S. as a result of the Inflation Reduction Act and Infrastructure Investment and Jobs Act - while minimizing the impacts of a slowdown in spending in other parts of the world.
In summary, WSP is a leader in an attractive market, with a beautiful balance sheet and an impressive team at the helm that maintains its focus on balanced growth. Though richly valued, management’s vision for the future growth of the company and the considerable tailwinds in the U.S. could warrant the price if the team is able to execute.
Report Card
Final Grade: A
Til next time, happy investing folks!
And that’s all for WSP! Let me know what you think about the company in the comments section and whether you’re more or less interested in the investment!
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