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Finance director Deena Mattar says that Kier's business model centres around using the funds from the group's cash-generative but lower-margin construction operations to support its other, higher-margin, asset-based businesses, such as homes and property. It's reassuring, then, that year-end cash balances in the construction division increased by £62.5m, while £115m of cash was generated from group operating activities.
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What's more, chief executive John Dodds says that the construction division is experiencing very strong markets, with revenue rising 16 per cent to a record £1.41bn, and an order book up from £1.47bn to a record £1.71m. Ms Mattar says this was driven particularly by high demand for commercial property from supermarkets Tesco, Sainsbury and Morrison, while public-sector demand also remains robust, especially for new schools work.
Meanwhile, the support services and homes operations are benefiting from the government's drive to see increased build and management of affordable housing. And the property division is reaping synergy benefits from the group's integrated developer/contractor approach.
So broker Landsbanki forecasts adjusted pre-tax profits of £91m (£79.6m in 2006) and EPS of 183p (159p) in 2008.
| KIER (KIE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,995p | MARKET VALUE: | £729m | |
| TOUCH: | 1,992-1,999p | 12-MONTH HIGH: | 2,578p | LOW: 1,620p |
| DIVIDEND YIELD: | 2.5% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 498p | NET FUNDS: | £148m | |
| Year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2003 | 1.42 | 33.3 | 70 | 16.4 |
| 2004 | 1.44 | 40.6 | 82 | 19.0 |
| 2005 | 1.57 | 54.5 | 103 | 22.2 |
| 2006 | 1.78 | 59.1 | 121 | 26.0 |
| 2007 | 2.07 | 77.6 | 155 | 50.0 |
| % change | +16 | +31 | +28 | +92 |
Ex-div:26 Sep Payment:04 Dec |
||||
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These results saw analysts upgrade their forecasts significantly, and the dividend increase reflects management's confidence in the group's future. So, trading on a modest 11 times forward earnings, the rating looks too low. Buy.
Last IC view: Good value, 2,015p, 11 Jul 2007
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
