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Earth-shattering profits at Keller

RESULTS: Keller is successfully repairing margins and the US recovery remains intact
July 29, 2013

A strong recovery in US residential building was the major catalyst behind a stunning first half at ground engineering specialist Keller (KLR). Underlying pre-tax profit more than doubled to £26.8m, and despite predicting flat underlying revenue in the second half, further margin improvement should nudge full-year results toward the top end of City forecasts. Analysts at Jefferies responded by upgrading profit forecasts by 15 per cent to £69m, giving adjusted EPS of 69.1p (from £43.5m and 45.9p in 2012). However, orders have slowed recently and there’s still work to be done.

IC TIP: Buy at 1096p

Operating margin doubled to 4.4 per cent during the period after Keller finished several big projects and cut costs. It got lucky with the weather in North America last winter, too. Further savings should feed through early next year, says chief executive Justin Atkinson, and the group's margin target of 6 per cent is within reach. It is already 5.4 per cent in North America, Keller’s largest market accounting for nearly half first-half revenue, and operating profit in the region jumped from £7.6m to £16.5m. That said, some big contracts either just ended, or nearing an end still haven’t been replaced.

Australia outperformed, too, with margins of 8.2 per cent flattered by a final flourish on the Australia Pacific LNG contract. Another LNG gig - Wheatstone - is underway. Elsewhere the outlook is patchy. Germany and Poland are challenging, Asia is mixed and the Middle East is picking up.

KELLER (KLR)

ORD PRICE:1,096pMARKET VALUE:£777m
TOUCH:1,096-1,098p12-MONTH HIGH:1,163pLow: 440p
DIVIDEND YIELD:2.1%PE RATIO:23
NET ASSET VALUE:539p*NET DEBT:6%†

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201261411.012.47.60
201364517.413.68.00
% change+5+58+10+5

Ex-div: 9 Oct

Payment: 1 Nov

*Includes intangible assets of £100.2m, or 141p per share

†Includes £57.6m from share placing for acquisition completed after period-end