Tag Archives: Kier

Stocks in Focus: Kier Group

This week I am revisiting Kier Group, the UK-based construction, services and property group following the release of its preliminary full year results last week.  The company enjoyed good performance over the last year with underlying revenues up 5% and profit for the year up 13%. All of the divisions posted positive results, driven by Property which has benefited from a joint venture strategy aimed at providing capital efficient sources of funding.

In addition, the company announced a record Construction and Services order book of £10.2bn demonstrating a positive outlook for the company. Investors welcomed the news and the share price went up over 3% on the back of the results.

Despite Kier performing consistently well in recent years, the construction sector has been out of favour with investors and the share price has subsequently underperformed. One of the key concerns is the level of net debt, which currently stands at £186m at the year end.

Management of Kier have acknowledged this concern, and reassuringly have recently launched the “Future Proofing Kier” (FPK) programme, which aims to improve operational focus and efficiency, improve cash generation and ultimately accelerate the reduction in debt. Part of this will be achieved by disposing of some of the non-core assets within the company in order to simplify the business.  Going forward they expect to generate £20m-£40m of free cash flow per annum which will be initially used to reduce debt and then finance the ongoing FPK programme.

Kier Group has transformed well over the last few years and now enjoys market-leading positions in many of its key markets. Performance continues to be on track and the new FPK programme has certainly been well received, but investors will be keen to see the benefits start to feed through for concerns to ease.



Stocks in Focus: Kier Group

This week I am looking at property, residential, construction and services firm Kier Group, which announced preliminary full year results last week. The performance was in line with management expectations and the results showed a group pre-tax profit of £126m, compared with £116m last year, while revenues for the year have risen to £4.28bn, 3 per cent higher than the previous year.

The results were well received in a sector where a number of Kier’s competitors had experienced problems. Investors were reassured that management’s portfolio simplification programme has been a success since they made the decision to sell the Hong Kong and Caribbean businesses earlier this year. The simplification has resulted in increased focus on its three core markets; building, infrastructure and housing, which now represent 90 per cent of the group’s revenues and profits.

Management are confident that the business will remain relatively unaffected by Brexit and the firm is likely to benefit further from the increasing government focus on affordable housing, having already secured government funding over the last year to build new homes.

When writing about Kier last year, we explained that the contractor had laid out a “Vision 2020” plan of strategic targets to reach by 2020. The reassuring recent results along with the decision by the board to raise the full year dividend by 5 per cent, should help to increase investor belief that the group is on track to hit its ambitious target of £200m in annual operating profits by 2020. However, the economic environment remains challenging.


Stocks in Focus: Kier Group plc

In late March I reported on Kier Group plc following the release of an encouraging set of interim results. Last week, the construction, services and property company announced it has reached an agreement to acquire Mouchel in a £265m all-cash deal.

Mouchel is the UK’s largest maintainer of national roads as well as providing design, managerial, engineering and operational services around the world. Additionally it has a small Business Process Outsourcing business that provides an integrated portfolio of support services to a range of establishments including local authorities, schools, and rescue services.

Combined, the two businesses will create the sector leader in the UK highways management and maintenance market (where Highways England plans a £17bn spending programme), servicing almost a third of the UK’s road network. Specifically, based on historic 2014 figures, the combined entity will have pro forma revenue of £3571m (Kier £2954m), EBIT of £115.7m (Kier £88m) and order book of £9.3bn (Kier £6.5bn).

To fund the acquisition, which will include taking on Mouchel’s £40m net debt and £45m of net pension liability, Kier is aiming to raise £340m in a fully underwritten rights issue. Management’s rationale for the deal is that it should be “materially earnings enhancing” in the year to June 2016 and facilitate £10m of cost synergies in the year to June 2017.  As always, the success of the deal will hinge on whether the price paid proves attractive and management’s ability to successfully amalgamate the two businesses.