Studend ID- 125817230
Total pages- 6
Currie Road Construction Limited Recommendation
Currie Road Construction Ltd should enter the US market (Houston, Texas) by setting up a wholly owned subsidiary, and will be involved in road maintenance. While Currie can make the most of the $880 million stimulus that the BC government is considering, by expanding into the Texan market, it will be able to earn additional cash flows over and above the ones earned from BC operations. Currie is projected to earn more revenues from road maintenance $1751.24 as opposed to road construction, which is projected to yield $ 832.65. Strategy Formulation
Currie Construction has a number of options laid down before them. As a trusted advisor, three options were narrowed down to after understanding Currie Construction current position (refer to Exhibit 1&2) and the pros and cons of each were discussed to find out the best possible route to take. Stay in Canadian market
Like the US government, the BC government is also considering spending more than $880 million in infrastructure spending. This would give a boost to the recession-ridden road builders and heavy construction companies. As per our estimates (refer to Exhibit 3), this stimulus would augment the revenues of Currie and despite them holding a 2.7% market share, which is relatively small compared to the other big players in the market, it would be able to earn $93220 million in 2009 (refer to Exhibit 3). However, this option is not a viable one for Currie, who wants continued success, as the stimulus of $880 million is an uncertainty and we cannot rely on it and there is no guarantee that we will maintain our market share post the stimulus, as the top 3 companies, who presumably have larger asset base and capacity, will be in a better position to take advantage of the demand as opposed to us, where we our limited by our capacity. Also, since the BC market is fragmented and has fierce competition, it would be difficult for Currie to maintain healthy margins while competing for a favourable chunk of the stimulus. Road construction in Texas
The TxDOT is anxious to identify shovel ready projects and has scheduled nearly $2.75 billion worth of project bids for April 2009. Through our analysis we identified that only 32% of the infrastructure projects were for construction, while 68% were for road maintenance. This would translate into a projected revenue of $ 832.65 million for Currie (refer to Exhibit 3). If this option is pursued, Currie will have to invest in buying new equipment, as its current equipment is old and breaks down often. Investing in new equipment would amount to a substantial capital expenditure, and Currie may not be in a position to finance this over and above financing the setting up of a wholly owned subsidiary. Currie is anticipating making more than 4% net profit on revenues with the new equipment, as abnormal profits seemed to be present in the Texan market. However, what these abnormal profits range to is more of a guess than a fact. Currie does not have complete understanding of the market and the customers. Currie, being a relatively smaller player will also have to take into account the fierce competition it will face from the established construction companies in Texas, once the ban on them is lifted (for price-fixing). Road reconstruction and maintenance in Texas
Currie’s primary strength is in road maintenance activities of pavement grinding and scarifying operations. Currie already has a good idea about this market as it had previously worked in the US as a subcontractor on several road rehabilitation projects. With 68% of the maintenance project bids, Currie is projected to earn $ 1751.24 million of revenues in one month (refer to Exhibit 3). Maintenance is a viable and a safer option to exercise, as it will give Currie a feel of the Texan construction...