Short seller Spruce Point once again takes on a heavyweight from Quebec Inc. This time, it’s a Montreal engineering champion who is there: WSP Global. The New York firm is banking on a 25 to 50% drop in its stock, accusing it of difficulties with its acquisitions, masked according to it by a “questionable” presentation of results.
WSP’s stock was down more than 5% on Wednesday ahead of the report’s release.
Spruce Point has published reports since 2021 on three other Montreal companies that it considered overvalued: Lightspeed, Saputo and Nuvei.
The short seller claims that WSP – formerly Genivar – has acquired 22 companies since 2020 for a total of US4.3 billion (CAN5.8 billion). According to him, his “opaque” figures suggest that these acquisitions cause “increasing growth challenges and financial stress”.
The most recent acquisitions appear weak and margins are suffering, the report mentions. WSP’s adjusted results are highly questionable and ignore costs to deploy its acquisition strategy.
Excerpt from the Spruce Point report
Spruce Point also claims that the engineering firm is significantly inflating key elements of its finances, including its earnings before interest, taxes, depreciation and amortization (EBITDA) and its cash flow.
The short seller adds that WSP’s “high employee turnover” and difficulties in recruiting compromise the company’s ability to digest these purchases.
Allegations of tax evasion in India
The New York firm also highlights allegations of tax evasion targeting the company in India. She explains that a former employee who “acts as a whistleblower” in this country accuses her of having “evaded tens of millions of dollars in taxes”.
Spruce Point also recalls the serious ethical problems experienced by Genivar in Quebec, widely discussed during the Charbonneau commission on corruption in construction. Its former CEO, Pierre Shoiry, still vice-president of the board of directors, was sentenced by the Order of Engineers of Quebec to fines totaling $75,000 in 2020 for his role in the system of sharing public contracts in Quebec .
PHOTO PATRICK SANFAÇON, LA PRESSE ARCHIVES
Pierre Shoiry during his appearance before the disciplinary council of the Order of Engineers of Quebec, in 2019
Mr. Shoiry had pleaded guilty to acts derogating from the exercise of the profession and renounced his title of engineer. WSP has just announced that he will be leaving the company next month.
“ Boys club »
Spruce Point believes investors should not place their trust in the board of directors.
“WSP has become a sprawling global company that receives 80% of its revenues from outside Canada, but its audit committee is composed exclusively of a boys (and girls) club from Montreal. » According to the short seller, the engineering firm should reorganize it to review its findings.
In an email from the company’s director of global communications, Aline Vandermeer, the engineering firm said it was “aware” of the release of Spruce Point. “While our team plans to review this report, WSP maintains the highest standards of governance and we take our obligations in this regard seriously. »
The Caisse de dépôt et placement du Québec is the largest shareholder of the engineering firm according to the most recent regulatory documents, with an investment with a current value of 4.7 billion.
“The Caisse is a long-term investor and makes its investment decisions with a view to creating value in the companies in which it invests,” says the director of media relations, Kate Monfette. Our relationship with WSP is a long-standing one. The company and its board of directors have our complete confidence. »
The second largest shareholder, the Canada Pension Plan Investment Board, has sold more than 3 million WSP shares over the past year, with a current value of 635 million.
Over the past year, WSP shares have gained 20%.
Read the Spruce Point report
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- 26 billion
- WSP Global market capitalization
Source: TMX Money