- Revenue falls at the construction arm
- balance sheet shored up by capital raise and asset sale
The six months to the end of last year represented a case of two steps forward, one step back for contractor Kier (KIE).
After concluding the important business of shoring up its balance sheet through a £241mn equity raise and the £110mn sale of Kier Living in the first half of 2021, the company has set out its plan on how best to use its resources – prioritising capital expenditure on “disciplined and non-speculative” investment, as well as further deleveraging. Only after it achieves this will it consider restarting dividend payments.
It also set strategic priorities in terms of who it wants to work with – focusing on lower-risk entities like the UK government, regulated industries and blue-chip customers, through some of the long-term frameworks for delivering infrastructure improvements.
The infrastructure side of its business picked up during the period, with revenue growing 15 per cent to £777mn due primarily to the ramp-up in activity on the HS2 high-speed rail network.
The performance of its construction arm disappointed, though, with revenue shrinking by a quarter to £681mn. It blamed delays in project procurement but said it had a handle on cost inflation through contractual agreements and selectivity over tenders.
Kier’s share price has taken a pounding over the past five years and it has undergone several attempts to cut debt and re-energise its business.
Broker Peel Hunt believes Kier's current valuation of just over five-times forecast earnings per share of 16.5p does not reflect its "proven" management team's ability to deliver longer earnings growth and quality cash flows.
It's not there yet, though, and in a sector with such low margins it’s understandable that investors are waiting for firm evidence of deliverability. Hold.
Last IC View: Hold, 123p, Sep 16 2021
| KIER (KIE) | ||||
| ORD PRICE: | 88p | MARKET VALUE: | £393mn | |
| TOUCH: | 87-88p | 12-MONTH HIGH: | 137p | LOW: 67p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 9 | |
| NET ASSET VALUE: | 114p* | NET DEBT: | 60% | |
| Half-year to 31 Dec | Turnover (£bn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
| 2020 | 1.62 | 9.00 | 3.80 | nil |
| 2021 | 1.54 | 12.7 | 2.20 | nil |
| % change | -5 | +41 | -42 | - |
| Ex-div: | - | |||
| Payment: | - | |||
| * includes intangible assets of £684mn, or 153p per share | ||||
