Kier reinstates dividend after revenue and profits rise

The 2022 half-year was a tough act to follow, but Kier's (KIE) performance went down well. The construction company reintroduced its interim dividend as revenue and pre-tax profits jumped in its interim results, posted the day after its much smaller rival Galliford Try (GFRD) also announced an encouraging set of half-year numbers.

There was a ripple of applause from the market, which marked Kier's shares up 5 per cent in early trading, but there are reasons to be sceptical. The results were driven by increasing revenue from its infrastructure business, which climbed 16 per cent and accounts for around half of its revenue, but most of this comes from the political football that is HS2. Meanwhile, money from private commercial real estate development more than doubled to £22.1mn from £10.8mn, but it accounts for a much smaller revenue slice.

Other construction companies have a heavy weighting to government projects, but few are so dependent on one specific government project. Moreover, few construction companies are in a net debt position. Because construction means owning few assets and operating on thin margins while waiting for chunky and bitty contract payments, most companies in the sector tend to avoid debt. Not so for Kier, which has struggled with net debt for several years thanks in large part to bad investments in past projects.

Consensus forecasts are for earnings per share to grow to 22.9p and for dividends to hit 7.28p by 2026. That may make the stock look cheap for some investors, but we are unsure about the visibility of Kier's earnings because of the HS2 weighting. That and the balance sheet are why we maintain our neutral rating. Hold.

Last IC view: Hold, 92p, 14 Sep 2023