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Kier's streamlining all but complete

The construction group's rationalisation programme is nearing completion and orders are on the rise
September 22, 2017

With a streamlined business portfolio and improved contributions from all four divisions, Kier (KIE) delivered full-year figures in line with consensus, but with adjusted gross profit more or less flat from 2016 at £383m. Post-tax profit was held in check by £86m in charges linked to the closure of operations in both Hong Kong and the Caribbean, but strip out exceptional items and underlying earnings were up 7 per cent to 106.8p. The rationalisation of the portfolio – including the disposal of Mouchel Consulting – has now been “substantially concluded”, so management anticipates that “no further material costs will be incurred” in this regard.  

IC TIP: Buy at 1170p

This good housekeeping extended to Kier’s working capital performance, resulting in a 39 per cent reduction in net debt since the 2016 calendar year-end. Meanwhile, operating cash inflows prior to working capital movements came in at £164m, representing a cash conversion rate at 113 per cent of operating profit.

The construction division (49 per cent of group revenue) revealed a record £3bn in contract awards during the period and has secured 90 per cent of target revenue for FY2018. The group order book stood at £9.5bn midway through July, boosted by the acquisition of McNicholas – a UK engineering services provider.

Broker Peel Hunt gives adjusted pre-tax profit of £140m for the June 2018 year-end and to EPS of 118p, against £126m and 106p in FY2017.

KIER (KIE)   
ORD PRICE:1,170pMARKET VALUE:£1.14bn
TOUCH:1,167-1,172p12-MONTH HIGH:1,505pLOW: 1,078p
DIVIDEND YIELD:5.8%PE RATIO:76
NET ASSET VALUE:521p*NET DEBT:22%
Year to 30 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20131.9425.962.654.4
20142.9115.416.257.6
20153.2839.540.255.2
2016 (restated)3.99-34.9-25.764.5
20174.1325.815.367.5
% change+3--+5
Ex-div:28 Sep   
Payment:1 Dec   
*Includes intangible assets of £803m, or 823p a share