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Kier on a highway to profits as Mouchel lifts services

Kier is now able to offer a much more integrated menu of services following the Mouchel acquisition
September 22, 2016

Larger-than-expected exceptional items pushed headline numbers into the red at Kier (KIE). Stripping out these costs left underlying operating profits ahead by 44 per cent at £150m for the year to June. Profits were boosted by the first full-year contribution from infrastructure group Mouchel, whose addition means that for the first time the services division is contributing more than half of group underlying profits. But costs associated with the integration of this business, legacy contracts, closure of the Caribbean operation and reductions in headcount resulted in a charge of £116m.

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The services side, which includes highways and housing maintenance as well as facilities management, pushed underlying profits ahead by a half to £86.1m, while margins rose from 4.6 per cent to 5.2 per cent. Much of the improvement in margins came from synergies in the Mouchel integration. A commitment to more collaborative working helped the unified highways division secure a four-year £160m extension to the existing contract with Surrey Highways and a five-year £105m extension on the Scottish Water contract. Two further extensions are under discussion, and two contracts worth a total of £90m were secured after the year end.

In construction, underlying profits were up by nearly a quarter at £47.4m, with revenue up 17 per cent to a record £2bn. The £3.4bn order book for secured and probable work means that more than 90 per cent of forecast revenue for the 2017 financial year has already been secured.

Residential construction, which is roughly split between mixed tenure and private homes, pushed revenue ahead by more than a third, while underlying profits jumped by 81 per cent to £20.3m. Some clients paused after the announcement of regulatory rent cuts, but demand is starting to pick up again, and a new mixed tenure joint venture aims to deliver 500 homes a year across the north of England.

Finances are in good shape, too, with net debt falling from £141m to £99m, while the pension deficit fell from £123m a year earlier to £72m. Analysts at Liberum are forecasting pre-tax profits for the year to June 2017 of £132m and EPS of 110p, compared with 107p in FY2016.

 

KIER (KIE)
ORD PRICE:1,301pMARKET VALUE:£1.25bn
TOUCH:1,300-1,301p12-MONTH HIGH:1,440pLOW: 917p
DIVIDEND YIELD:5.0%PE RATIO:NA
NET ASSET VALUE:596p*NET DEBT:17%

Year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20122.9763.011452.8
20131.9425.95054.4
20142.9115.41657.6
20153.2839.54055.2
20164.11-15.4-1364.5
% change+26--+17

Ex-div:29 Sep

Payment:02 Dec

*Includes intangible assets of £795m or 825p a share