Engineering Services
Using engineers to design your portfolio:
Initiating coverage of Stantec Inc. and GENIVAR Income Fund
ENGINEERING SERVICES
STRATEGYPLUS
RESEARCH REPORTS
INITIATION OF COVERAGE:
STN & GNV.UN
Desjardins
Securities
Please see disclosure section on pages 64–65 for company specific disclosures, analyst certification and legal disclaimers.
Pierre Lacroix, CFA
(514) 281-4231
Shannon Molenaar, CFA, Associate
(416) 867-3541
Jeremy Rosenfield, Associate
(514) 985-1862
• We are initiating coverage of Stantec Inc. and GENIVAR Income Fund, two companies that provide
engineering services to build and maintain North America’s infrastructure. Long-term infrastructure growth
remains intact thanks to economic stimulus packages, heightened environmental awareness and the need
to refurbish aging assets. This should underpin the performance of Stantec and GENIVAR through the
economic downturn, as more than half of their business is tied to public construction spending
• Stantec and GENIVAR are well positioned to capitalize on consolidation in the engineering services industry.
GENIVAR, financially flexible with a debt-free balance sheet, is on its way to becoming one of the top 3
Canadian engineering services firms as it targets to nearly double revenues by 2010–11. Stantec is also in
growth mode, and completed its largest acquisition ever (Jacques Whitford) in January
• Share price rebounds have been aggressive, with Stantec up ~70% and GENIVAR ~40% after their lows
during the overall market slump last fall, reflecting investor optimism around infrastructure spending and
Stantec’s recent acquisition
• “Buy on rumour, sell on news”? We believe these stocks may weaken after the market digests the full details
of economic stimulus programs and their inevitable implementation lag. However, we believe there could
be a second wave of valuation expansion after confirmation that construction will begin. We would suggest
investors use any price weakness to become more aggressive buyers of these names. We prefer GENIVAR for
the time being in terms of valuation, yield and balance sheet flexibility
Event. We are initiating coverage of Stantec Inc. with a Hold–Average Risk rating and C$31.25 target, and GENIVAR Income
Fund with a Buy–Average Risk rating and C$26.75 target.
Expanding coverage of top Canadian engineering plays. The engineering services industry in North American is
US$100–130b in terms of annual revenues. Stantec and GENIVAR are two of the most important Canadian names in this
industry (after SNC-Lavalin, rated Buy–Average Risk with a C$45.25 target). Both companies take a fee-for-service approach,
offering services that encompass the full spectrum of the construction lifecycle to both private and public clients. GENIVAR
provides exposure to infrastructure spending in Canada, whereas Stantec reaches the full North American market. Neither
company is involved in actual construction, nor do they take on the risk associated with construction. The two companies
have been pursuing an aggressive growth-by-acquisition strategy for a number of years and intend to continue on this path.
With Stantec, investors get access to a growing mid-capitalization consulting engineering company. A large portion of Stantec’s
business is linked to relatively ‘recession proof’ environmental services. Stantec’s goal is to become one of the top 10 global
engineering services firms.
With GENIVAR, investors gain exposure to a high-growth, small-capitalization play. GENIVAR has operations primarily in
Eastern Canada (Québec, Ontario) and a growing presence in Western Canada. Through a growth-by-acquisition approach,
GENIVAR aims to become one of the top 3 Canadian firms in the industry.

Table of contents
3 Executive summary
3 Why look at engineering services?
3 Why look at the sector now?
3 Which do we prefer and why?
3 How to approach this report
3 Investment thesis—Stantec
5 Investment thesis—GENIVAR
6 Risk considerations
7 Industry overview
7 Canadian market
13 US market
19 Key infrastructure sectors and trends
20 Stantec Inc. (STN)
21 Company profile
22 History
22 Strategy—focus on high quality, low risk
25 Growing by acquisition
28 Management and shareholder base
29 Financial review and forecast
33 Valuation, recommendation and risk
36 GENIVAR Income Fund (GNV.UN)
37 Description and profile
37 History
38 Strategy
39 Growing by acquisition
42 Management and shareholder base
43 Financial review and forecast
45 Valuation, recommendation and risk
48 Appendix A: Financial summaries
50 Appendix B: Publicly traded Canadian engineering design firms
51 Appendix C: Canadian construction comparables
52 Appendix D: US E&C comparables
56 Appendix E: Long-term infrastructure growth drivers
60 Appendix F: Stantec and GENIVAR projects
62 Appendix G: US non-residential construction

Executive summary
Why look at engineering services?
We believe the engineering services sector offers investors an attractive way to participate in several different growing industries
that operate on a local, national and international level. In addition to organic business opportunities, the high level of
fragmentation of the engineering services industry in both Canada and the US gives firms the opportunity to grow through
mergers and acquisitions. Valuation aside, we advise investors to consider each company’s expertise, geographical reach and
competitive position in the Canadian and US markets.
Stantec and GENIVAR are two of Canada’s largest engineering consulting firms, offering engineering design and architecture
services to private and public sector clients. Along with SNC-Lavalin, the largest Canadian engineering and construction firm,
Stantec and GENIVAR round out the top 3 public plays in the sector. These firms offer an interesting risk-reward opportunity.
Risks are minimized through Stantec and GENIVAR’s fee-for-services approach (no construction); diversification across industries,
geographies and stages of the construction lifecyle; generation of fairly stable, growing cash flow; and low balance sheet risk.
We note that a properly diversified and integrated engineering firm should be able to take advantage of all stages of the
business cycle.
Why look at the sector now?
After one of the most active global megaproject booms in modern history, the world recently entered a period characterized by
uncertainty and risk aversion. This has been demonstrated by the large number of commodity-related megaprojects being
shelved, owing to the collapse in commodity prices and project financing issues. Now, as major economies enter a global
recession, unprecedented efforts by governments toward recovery in many regions have resulted in sizeable economic stimulus
packages that should support infrastructure spending for the next 2–3 years. Beyond the immediate term, an economic
recovery is expected to reactivate megaprojects related to commodities. Stantec and GENIVAR stand to benefit through the
entire upcoming spending cycle: first, from public construction (economic stimulus packages), and, second, as spending on
private construction resumes. With significant exposure to public expenditure, purchasing Stantec and GENIVAR is a strategic
way for investors to gain exposure to a segment of the economy that is expected to remain strong during the recession.
Which do we prefer and why?
We currently favour GENIVAR over Stantec as an investment. We believe GENIVAR’s attractive yield/payout, combined with its
higher growth potential, makes the stock a better investment at current levels. Moreover, the recent strong performance of
Stantec now makes GENIVAR more attractive on a valuation basis. Thanks in part to the Jacques Whitford acquisition, Stantec
rebounded ~70% from its lows reached in the fall, whereas GENIVAR has returned ~40%.
Despite the many similarities between Stantec and GENIVAR, we believe it is necessary to distinguish between the two in terms
of operations (geographical exposure), capital market position (size and yield) and balance sheet strength. First, GENIVAR is
almost entirely exposed to Canada, primarily Québec and Ontario, whereas Stantec has operations across North America (with
the exception of Québec). Second, GENIVAR is a small capitalization stock (~C$300m market cap), whereas Stantec is considered
mid-capitalization (C$1.3–1.4b market cap). Third, GENIVAR is an income trust and offers investors an attractive yield (6.4%, with
a payout ratio of ~50% before special distribution), whereas Stantec has no formal dividend policy in place. Finally, GENIVAR
intends to focus on growing across Canada until 2010, whereas given the acquisition of Jacques Whitford and its current level of
debt, Stantec will most likely pause before resuming acquisitions. GENIVAR is highly likely to maintain its pace of acquisitions
(26 acquisitions in 27 months) in order to reach its goal of doubling its size by the end of 2010.
How to approach this report
This report provides an investment perspective on the Canadian and US engineering services market, its drivers and top players.
The report is split into three main sections, supported by several appendices. The first section describes our main theses with
respect to Stantec and GENIVAR. The “Industry” section provides a general overview in terms of market size, economic drivers
and the competitive landscape for both the Canadian and US market. This is followed by a detailed analysis of the key business,
financial and investment characteristics of Stantec and GENIVAR.
Investment thesis—Stantec
Approaching North American opportunities from both public and private sources with a low-risk model. Stantec is
Canada’s second-largest engineering services company, with >10,000 employees (including employees of Jacques Whitford)
spread over 150 locations (10 provinces, 33 US states and the Caribbean). The company operates under a risk mitigation model
that diversifies its activities among five main practice areas (Environment 37%, Urban Land 17%, Buildings 18%, Industrial 17%

and Transportation 11%) over every major stage of the construction lifecycle, with exposure to the US (~50%) and Canadian
markets (~47%). Stantec generates its revenues equally from public and private sources, a key advantage considering the
upcoming economic stimulus packages, which will likely boost public spending. The company has minimized client and
project risk, with only 10% of its sales derived from the top 10 clients and 5% from the top 10 projects. As opposed to global
firms such as SNC-Lavalin, Fluor and Jacobs (to name a few), Stantec works in a fee-for-services world where no construction risk
is involved.
Stantec’s environmental footprint has deepened with the Jacques Whitford acquisition. Stantec recently closed the
acquisition of the environmental consulting firm Jacques Whitford—its largest ever. This acquisition will broaden Stantec’s
footprint in environmental engineering services, especially in its permitting, remediation and geotechnical expertise. With
Jacques Whitford, Stantec is becoming a company with a stronger foothold in the initial stages of the project lifecycle
(permitting, planning), which should allow the firm to enhance its multidiscipline offering and lower its sensitivity to economic
cycles (the early stages are usually a small component of overall project cost and, therefore, are less likely to be postponed
during recessionary times). Finally, we estimate that the acquisition will add about C$170m (+15%) in net sales and ~C$24m in
EBITDA (+15%) to Stantec in 2009, and increase the number of Stantec’s employees by close to 20%.
Opportunities in Buildings, Industrial and Environment practice area units. In the current market context, the company is
optimistic regarding opportunities in the Building, Industrial and Environment practice area units. Several upcoming building
projects were awarded to Stantec due to its expertise with hospitals and education facilities. Also, very strong demand for its
expertise as a partner in public-private partnership (PPP) consortia in Canada is expected to support new project wins in the
Buildings area. In the Industrial area, management is optimistic about transmission and distribution projects, especially in
Ontario, notably the Bruce-Milton 230kV transmission line. The company is also involved in renewable energy projects such as
windfarms. The renewable energy sector in both Canada and the US should provide interesting opportunities for the Industrial
area. Overall, Stantec sees the Environment area continuing to be stable with a positive bias, stimulated by clients’ need to
comply with environmental regulations, and potential economic stimulus packages.
Key financials. Over the last 10 years, Stantec’s revenues and EPS have grown at a compound annual growth rate (CAGR) of 22%
and 23%, respectively. We conservatively expect average revenue and EPS growth from 2008–10 of 13% and 16%, respectively.
The main top line driver in 2009 should be the contribution of Jacques Whitford, coupled with marginal organic revenue
growth of 3%. Margins are expected to trend down only slightly as better contract execution will largely offset the pressure on
fee income (fewer projects allow it to maximize resources and improve execution since the majority of work will be completed
by employees with the highest level of skill).