Shares in Kier (KIE) rose sharply after the construction and services group revealed that its property and residential divisions are delivering on the targets for return on capital employed, while operating margins in the construction and services divisions have been maintained.
In the wake of the Carillion (CLLN) fiasco, this has come as welcome news. Net debt has increased during the six months ending December 2017 to around £235m from £179m a year earlier, reflecting continued investment in the property and residential divisions. But net debt as a ratio of cash profits is still forecast to be below 1.0 times and is expected to reduce over the period to 2020. This is important because investors are naturally less comfortable with debt levels after Carillion.
The combined construction and service order books remained strong at around £9.5bn, with all revenue already secured for the year to June 2018. Further business is likely to be secured by March, including three-year extensions with two contracts with Highways England. In addition, Kier and Eiffage have taken over responsibility for the HS2 joint venture, which did involve Carillion, and Kier is taking full responsibility for the smart motorway schemes previous shared with Carillion. No financial fallout is expected from these changes.
