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Kier all set for stronger second half

Sentiment has been blighted by Carillion's collapse, but Kier is performing well
March 15, 2018

Kier (KIE) continued to streamline its operations, and from July this year will focus on three reporting operations: infrastructure services, building and developments, and housing. Headline profit for the six months to December 2017 were down slightly, but after adjusting for one-off closure costs of the Caribbean and Hong Kong businesses, they were marginally ahead.

IC TIP: Buy at 1024p

Profit rose sharply in the property division, with activity remaining focused on pre-let developments, while the construction side saw profit dented by closure costs, which trimmed margins from 2 per cent to 1.8 per cent. Some recovery is expected in the second half, and as chief executive Haydn Mursell pointed out, without the closure costs margins would have been nearer 2.5 per cent. The current £4.7bn construction order book means that all targeted revenue for the year to June 2018 has already been secured.

On the residential side, Kier completed 965 units and operating profit grew 7 per cent to £8.7m, while the return on capital employed grew from 8 per cent to 11 per cent. Private sales focus on affordable homes, with average selling prices at £240,000.

Revenue from services, which covers infrastructure, highways, utilities, property and environmental services, rose by 17 per cent to £901m, while operating profit was boosted by 19 per cent to £44.4m, with margins ahead at 4.9 per cent. Much of the improvement was driven by the highways business and the acquisition of McNicolas. Two-thirds of the services division's revenue comes from infrastructure services in the highways and utilities sectors, and around £700m of new work was secured, taking the order book to £4.8bn.

With the three joint arrangements with Carillion, Kier has increased its share to 100 per cent on the smart motorways project, and from a third to a half on two HS2 contracts, with all contracts performing well.

Analysts at Numis are forecasting full-year pre-tax profit for the year to June 2018 of £139m and EPS of 117p, up from £126.1m and 106p in 2017.

KIER (KIE)    
ORD PRICE:1,024pMARKET VALUE:£1bn
TOUCH:1,022-1,025p12-MONTH HIGH:1,505pLOW: 942p
DIVIDEND YIELD:6.6%PE RATIO:320
NET ASSET VALUE:556p*NET DEBT:44%
Half-year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20162.0135.740.722.5
20172.1733.728.623
% change+8-6-30+2
Ex-div:22 Mar   
Payment:18 May   
*Includes intangible assets of £867m, or 889p a share