(Montreal) Financial analysts at major Canadian institutions seem to give little weight to the allegations of a short seller who accuses the engineering firm WSP of having “embellished” its financial results.
The American firm Spruce Point Capital Management published a 68-page report on Wednesday in which it stated that the company “appears to be facing greater financial difficulties” than its financial statements suggest. She estimates that its stock could fall by 25% to 50%.
For his part, Maxim Sytchev, of National Bank Financial, judges that WSP’s accounting is “transparent”. “We believe that the level of detail in WSP’s results is in line with industry standards,” he responds
The report’s arguments did not shake the optimistic view of Scotiabank’s Michael Doumet, who calls WSP “first in class” in its industry. “Its track record of organic growth, margin expansion and profitable acquisitions is hard to match,” he defends.
In its report Spruce Point also raises doubts about the company’s governance. The report mentions allegations of tax evasion in India. He recalls the ethical problems that the company experienced when it bore the name Genivar, problems which resurfaced notably during the Charbonneau commission.
He targets Pierre Shoiry, who led the company for 21 years before becoming vice-president of the board of directors in 2016. Mr. Shoiry was also sanctioned by the Order of Engineers of Quebec. The businessman gave up his engineering title in 2020. The company announced last week that Mr. Shoiry was retiring next May.
Mr. Sytchev rather believes that the company’s ethical issues are “behind it”. “We have full confidence in management and its good track record. »
The National Bank Financial analyst also refutes Spruce’s concerns about the turnover rate of WSP employees, which reached 16% in 2022. He emphasizes that the turnover rate is on a downward trend after having jumped during the pandemic. He estimates that this rate will be around 11% in 2023.
“Using reviews on the Glassdoor site, we did not find signs of a turnover rate explainable by low remuneration,” says Mr. Sytchev. Employee dissatisfaction seems anecdotal and is in no way scientific. »
Mr. Doumet sees no reason to doubt the accounting of the company or its managers and directors. “The company’s profile is well understood by its shareholder base and the President and CEO has been at the helm since 2016.”
The analyst believes WSP is well capitalized to pursue further mergers and acquisitions. “We would be buyers in the event of a stock market decline. »
In an email, WSP said Wednesday that it was reviewing the report and applying the highest standards of governance.
For its part, the Caisse de dépôt et placement du Québec, which holds 18% of the outstanding shares, reiterates its confidence in WSP. “CDPQ is a long-term investor and makes its investment decisions with a view to creating value in the companies in which it invests,” said spokesperson Kate Monfette in a press release. Our relationship with WSP is a long-standing one. The company and its board of directors have our complete confidence. »
Not the first Canadian target
This is not the first time that Spruce Point has damaged a Canadian company. The firm did the same exercise against Dollarama in 2018, Canadian Tire in 2019, Lightspeed in 2021 and Saputo in 2022, among others.
In the cases of Dollarama, Canadian Tire and Saputo, their shares suffered an immediate correction, but regained lost ground a few months later. Lightspeed’s stock has never recovered the lost ground since the report was published.
Spruce Point has been criticized in the past for being able to short some of the stocks in its sights. Short selling allows an investor to enrich themselves when a company’s stock declines on the stock market.
In an interview with The Canadian Press in 2022, its founder, Ben Axler, defended his ways of doing things. He responded that he is “an independent voice” and that his firm is transparent about its strategy of betting against companies that it considers to be in difficulty.
“Our reports are independent,” he defends himself. I am not paid by the company to give my recommendation. I only get paid if I’m right. »
WSP’s stock, which lost 5.4% the day before after the report was published, is regaining some of the lost ground. The stock gained $2.80, or 1.34%, to $211.25 at the close of trading on the Toronto Stock Exchange.