Join our community of smart investors

Keller digs its way out of pandemic slump

Underlying margin squeezed by higher costs
March 8, 2022
  • Three acquisitions made in North America
  • Broker forecasts 13 per cent increase in earnings per share

It may seem odd that a company that’s usually involved as early in the construction cycle as Keller (KLR) suffered a delayed impact from Covid-19.

Like its peers, though, it continued working relatively unrestricted in the pandemic’s early phases and only began to suffer from a drop-off in volumes in the first half of last year, as orders were completed more quickly than they were replenished.

Business recovered in the second half and the company ended the year with a near-£300mn increase in its order book to £1.3bn, although headwinds such as higher steel prices and labour costs meant profits were hit on some fixed-price contracts. Its underlying operating margin was squeezed to 4.2 per cent, from 5.3 per cent a year earlier.

Cash flow remained reasonably strong, with the £60.1mn generated funding initial payments of £31.3mn for three acquisitions made last year, as well as higher working capital as activity ramped up. Net debt closed almost flat at £193.3mn.

All of the businesses bought were in North America, which now generates more than half of the company’s revenue and three-quarters of its operating profit.

The current geopolitical situation notwithstanding, chief executive Michael Speakman is upbeat about its markets both in Europe and North America, given the higher infrastructure spend planned by governments on either side of the Atlantic.

Broker Numis forecasts a 13 per cent increase in Keller’s earnings per share to 100p. The shares currently trade at seven times this level, lower than competitors. Although cost inflation seems unlikely to ease, especially given the recent spike in energy costs, there is enough value in the company’s shares in a growing market to maintain our buy recommendation.

Last IC View: Buy, 936p, 3 Aug 2021

KELLER (KLR)    
ORD PRICE:721pMARKET VALUE:£521mn
TOUCH:720-723p12-MONTH HIGH:1,044pLOW: 670p
DIVIDEND YIELD:5%PE RATIO:8
NET ASSET VALUE:608p*NET DEBT:44%
Year to 31 DecTurnover (£bn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20172.0711112134.2
20182.228.4-20.635.9
20192.3051.629.735.9
20202.0663.858.935.9
20212.2271.687.135.9
% change+8+12+48
Ex-div:1 Jun   
Payment:1 Jul   
*Includes intangible assets of £142mn, or 196p a share