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Kier set to grow

Kier's May Gurney acquisition widens the group's product offering and paves the way for double-digit profit growth
September 18, 2014

Headline figures don't tell the real story at Kier (KIE). Adding back one-off items and a £42m exceptional charge relating to the acquisition of May Gurney, underlying profits of £73.1m were up by over 50 per cent.

IC TIP: Buy at 1,705p

But this is just part of the story, because the May Gurney acquisition has increased the range of services that Kier can now offer to its clients. This bundled service, or one-stop-shop approach, appeals to customers, mainly because they like to deal with one contractor that can provide a whole range of services, from construction through to facilities management. As a result of the much broader range of integrated services, Kier is now targeting double-digit compound annual growth in operating profit through to 2020.

Margins in the services division rose from 4.4 per cent to 4.8 per cent, thanks in part to £5m of cost savings, with a further £20m expected by 2016. However, operating margins on the construction side - which generates around half of group turnover - fell from 2.3 per cent to 2.1 per cent, mainly due to cost inflation as both raw material prices and wages rose.

Analysts at broker Liberum expect adjusted pre-tax profit for the current year of £90.3m and EPS of 128p (from £73.1m and 107p in 2014).

KIER (KIE)
ORD PRICE:1,705pMARKET VALUE:£945m
TOUCH:1,705-1,711p12-MONTH HIGH:1,943pLOW: 1,582p
DIVIDEND YIELD:4.2%PE RATIO:93
NET ASSET VALUE:554p*NET DEBT:40%

Year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20102.0657.710858
20112.1272.516664
20122.9763.014366
20131.9425.962.668
20142.9514.818.472
% change+52-43-71+6

Ex-div: 24 Sep

Payment: 28 Nov

Includes intangible assets of £324m, or 584p a share