Keller hit by forex translations but orders build

Shares in Keller Group (KLR) were on the fly on results day, even though the geotechnical specialist contractor revealed an 18 per cent fall in adjusted operating profit to £39.5m, reflecting squeezed contract margins brought about by the pandemic and adverse foreign exchange translations, coupled with a strong comparator in 2020.

Though it would be a stretch to characterise this as a relief rally, the results certainly trumped expectations and “performance for the full year is now anticipated to be materially ahead of the board's previous expectations, with a modest second half bias”.

At any rate, reported profitability outstripped the first half of 2020 and by the end of July the order book had risen by 11 per cent to a record high of £1.2bn, as activity within the group’s North American and European markets ratcheted-up. The European order book, which includes work linked to the controversial HS2 project, stood at £375.5m at the period-end, representing a one-third increase at constant currencies.

The share price has more than doubled since it tumbled to a five-year low towards the end of March 2020, but they still trade at a lowly 12 times consensus forecast earnings. The share price volatility in recent years may reflect the capital-intensive nature of the business.

Yet the group is engaged in a branch of civil engineering concerned with the engineering behaviour of earth materials. So, any increase in the number of large-scale construction and/or infrastructure projects is favourable for trading, so it is well placed given stimulus measure now being rushed forward by western governments. A buy – but only for those who appreciate that the construction industry is subject to cyclical downturns. Buy.

Last IC view: Buy, 574p, 04 Aug 2020