The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
I think everyone is wondering how inflation is affecting Kier. They're holding a 'capital markets day' next month, so we should see some numbers then, ahead of the full year update in July/Aug. Can't see how the business can be worth much less than it is now. They've just won the A417 project, subject to planning go-ahead later this year. That one contract is worth more than the whole company's current market cap!!
I think it's taking the market a while to appreciate the extent of the turnaround at Kier. After the full results came out the reaction was decidedly muted even though the business posted a profit for the first time since the Mursell/Dew disaster, huge write-offs and shareprice crash. I suppose it'll be the results in four months time that will show if Andrew Davies's reliance on advisors with multi-million pound fees is at an end and Kier can get back to being a boring concrete and steel business. Only 12,000 people working at Kier now. The redundancy hand-outs must be over. I'm holding now for next year. £3 target.
This has the whiff of bullshyte about it. Which 'multinational' concrete plant? It would hardly be a secret if it were true. I suspect you are making it up, like much of what you write.
First half profit came in at £9m but that was with the final restructuring costs. All of that is finished now. The final plank (sale of Kier Living and the equity raise) has now been implemented. The more interesting number will be the profit for the second half, due to end 30th June, in about 6 weeks time. That should be more normal. I'm expecting it to be about £40m, due to the reduced turnover and higher costs during this covid year. But as investors, we should look forward before the rest of the market gets there. Kier's estimate for profit next year is between £140m and almost £160m. That makes today's fwd price earnings look like about 3. The MFool writer reckons that a p/e of 10.5 is about right. That means today's fwd p/e of 3 is only a third of the 'right price'. I expect to see £3-£4 in the next six months. This is what Kier says in its initial notice on the cash raise:
Kier expects actions taken to right size the Group as part of the turnaround strategy will result in continued improved financial performance. The net proceeds from the Capital Raise will further strengthen the Group's balance sheet, building on the sale of Kier Living, and underpin Kier's medium-term value creation plan targets:
o Revenue: GBP4.0 - 4.5 billion
o Adjusted operating margin: c.3.5 per cent.
o Cash conversion of operating profit: c.90 per cent.
o Balance sheet: Sustainable net cash position with capacity to invest
o Dividend: Sustainable dividend policy with dividend cover of around three times earnings through the cycle
In other words, all the fat has been cut away and Kier is likely to outperform peers like Balfour and Morgan Sindall who are on much higher p/e ratios (about 20 or higher). If Kier get's rated better than Morgan Sindall and BBY, we could be looking at £6-£8. DYOR. GLA.
PART 2
Another key aspect to the sp dynamic is the very small proportion of available shares. Only 27% of Kier's shares are NOT held by major shareholders. This has enabled much of the volatility in the share price; relatively small trades have moved the share price disproportionately, enabling hedge funds to 'artfully' manipulate the sp down especially in 2019, a significant factor in the sp's low point. Diluting the holdings of the major holders conceivably increases the opportunity for a bid for the entire company. My guess is that the major holders will feel obliged to minimise dilution as much as possible, particularly since Kier has now turned a corner. An investor holding Kier through the last two years of re-structuring is unlikely to meekly give up their holding now that the business is about to reap the rewards. That means that they will take up whatever additional equity is made available, and I'm guessing that this is a key negotiating/directional point with major shareholders, the Kier board and the commercial banks/underwriters for the equity raise. For that reason, I reckon that shareholders will get a good deal in the equity raise AND that it will be massively over-subscribed. We will have the answers soon; we are now more than three weeks into the 'coming weeks' period mentioned by Davies when he discussed the equity raise.
We are also only six-and-a-half weeks away from the year-end. Figures are obviously not available the day after the year-end, but last year Davies rushed out an update the very next day on the state of the business. Since Kier managed a £9m profit at this last half-year with the tail-end of two years of exceptional costs from its restructuring and covid expenses, this next half-year could herald a return to normality and possibly a £40m profit. This would be another positive surprise for the market, which has grown used to Kier disappointments rather than successes, evidenced by the current forecast p/e of approximately 1. Just one year's earnings!! Unusually for Kier, we are in a period of frequent newsflow.
Put a £40m profit together with the sale of Tempsford Hall and £75m starts to alter the equity raise numbers very significantly. Obviously this is just speculation, but Davies and his team have spent two years turning the great Kier ship around; I think it's entirely possible that positive developments will now begin to balance the disappointments of the previous management team's efforts. But even without new positive outcomes, the stage is already set for a massive recovery at Kier. The business remains the largest UK regional construction firm with a formidable order book and a slimmed down profit-focused workforce. Recent moves in the share price are beginning to reflect this.
I found this interesting view published at the weekend on one of the other share forums.
PART1.
Kier is the market leader in construction and has massive momentum compared to smaller operators. Kier's sp will ultimately reflect this. Two loss-making contracts almost wiped out Costain (for example) -- Kier has already handled much worse and has survived. Banks are onside and will continue to be very supportive, regardless of Davies's decision on the equity-raise, imv. The business has clearly turned a corner and lenders are earning safe money from the UK's largest construction firm.
After the equity-raise terms are published, my guess is that the sp will increase by multiples. We have now passed the nadir for Kier's share price and after two years of bad news, I think we will now see many positives coming from the work that Davies's management team has done in positioning the business for recovery, including increasing margin, increasing revenue and cash coming into the business.
A key aspect to the equity raise (apart from reducing debt and finance costs) is making the shares attractive again; it's a key performance target for Davies and he has a large bonus-incentive riding on it. Without the cash-raise, it will take Kier three years to achieve a net cash position assuming profits a little below the low end of Davies's recent forecast -- he forecast profit margin of between 3% and 3.5% on turnover between £4bn to £4.5bn; that's £120m to £157.5m. Without new cash, finance costs will put a dent in those earnings of maybe £15m a year.
But with a cash injection, Kier might achieve net cash in as little as six months. That could bring the prospect of dividends forward by more than two years. Davies has stated an intention to pay dividends of around one third profits, conceivably £40m+ a year. If the market were to rate the share price on a 4% dividend return (as it has done historically), Kier's market cap would be in the region of £1bn (today's market cap is about one sixth of that value at around £160m). If profits are at the higher end; £52m in dividends and a £1.3bn market cap. A p/e ratio for total earnings is around 18 for the sector. At a p/e of just 15 and profits of £140m, Kier would be valued at £2bn, and if the market rates Kier as the sector leader this would push the market cap even higher. The share will increase in multiples of the current share price and I think few people disagree with this. A key factor on the multiples is the level of dilution from the equity raise. If we are ultimately looking at a £2bn company with twice the current number of shares, perhaps we will see the share price increase only 600%!
There is also the potential for more positive surprises; Tempsford Hall had an asking price of around £40m. Regional property has increased in value due to the influence of covid; just £35m from this asset would make a significant dent in the money needed from the equity raise.
From steadyeddy - answering trolls with a fabulous piece of forecasting. Let's see if it comes anywhere near being true.
The mixed message of sale of asset/cash-injection, a half-way decent set of results BUT an RI, might easily minimise any drop. There might in fact be no drop at all.
You are also failing to recognise that there could be an equity buy-in -- no one knows yet -- but that would blow the price upwards massively instead!
BUT let's indulge your doom-mongering for a moment. Imagine a 3 for 2 RI at 65p with the sp at say, 100p on the news (we seem to heading there), plus the sale of KL for £110m. If the sp dropped 10p straightaway (but not very far due to good news mixed with a cash-call), holders taking up the rights would have shares at an average 75p in a company that would be practically net debt free AND the market leader in its sector. The last remaining impediment for Kier removed at a stroke. P/e would immediately head to something more normal as soon as the market hears that most of the institutional holders have agreed to buy the rights -- and that could be on the day. (Davies and Kesterton MUST do the groundwork with the major holders first. I hope AD has learnt this from his past run-ins with the major shareholders.) Though it's a gamble, it might even be worth holding two fifths of your preferred investment level in order to get that discount. Only a little over a quarter of Kier's shares are available on the open market -- Kier has VERY HIGH INSTITUTIONAL OWNERSHIP; OVER 71%!!
Shorts, btw, would be double-whammied -- the sp not dropping far AND where the longs have rights shares in profit (by 10p in this scenario) the shorts are looking at any advantage in the drop almost wiped out by their 10p loss on the other side of the rights issue equation. AND if the market reacts positively instead, with the sp actually going up on the news, shorts will be quickly burned -- a distinct possibility.
The company should be valued at somewhere around a £1bn on current earnings equating to about £2.50 a share post-rights. Since we are also going to see higher revenue and potentially a slight increase in profit margins (look at Costain's five-gate profit assessment before they sign any new contracts -- the whole industry is getting more careful, especially since Carillion and Interserve's failure AND Kier's brush with disaster) in a market where there is more business from a minor infrastructure boom AND consequently more customer demand. (Maybe even a major boom!) A meagre £50m underlying profit for a p/e of 20 and £1bn valuation is much too low -- my guess is that a year from now we're likely to see double that profit and potentially a £2bn company. Kier will, imv, triple-bag initially and 5-bag at the very least in one year.
Even an investor NOT taking up the rights would more than double their money on the scenario above in short order. That's why IoM's etoro pundit considers Kier practically 'risk-free'.
There is no other way of saying this - what a beautifully reasoned forecast on the possible shareprice movement for Kier in a cash-raising over on advfn. Since stinkley posts here from there all the time, I see no reason not to share this post with everyone here and I hope that steadyeddy in the other place, won't mind me bringing his post to a wider audience (does anyone even read advfn anymore?). I will post it as a separate message in a moment. All enjoy!
Stinkley has been posting on advfn kie as zicopele and also possibly as wallywoo for last 2 yrs. Always stupidly negative claiming to be short. Is not. A bitter ex-kier employee probably.
New poster on advfn tripped over an etoro trader withe big following who gave the following view on kier - not wholly right but a very strong opinion on sentiment and massivley bullish. When you get away from the fakes, it's surprisingly obvious what a bargain kier is right now. etoro trader's Assessment follows. A few mistakes in the assessment below by Marcin Jasinski 9 days ago but interesting to see the view of kier outside these chatboards. Very different to Stinkley's miserable moaning!
Some of the numbers are wrong/out of date. Jasinski doesn't seem to know that woodford's holding was taken over by another fund. He also doesn't realise that the business has an order book of over £7bn. He thinks a £250m contract is good news. He'd probably wet himself with excitement if he realised there's £7bn+ in business. He also got debt much higher than reality.
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Kier is one of the most undervalued stocks on eToro and has been very steadily growing amid all the market turmoil. PE of 4.61 as per eToro and Forward PE of 1.95 as per Refinitiv are both extremely low (normal PE is around 20, Amazon is trading at 91).
Perhaps more importantly, Kier has recently won a 250M contract while its market cap is not even reaching 140M.
Its debt is high at 924M and Debt to Capital stands at almost 80%.
Revenue is expected to grow at c.6% a year and the margins are expected to improve from 3.7% to 4.2%. EPS has been dramatically improving, going from negative to positive and showing 132% growth FY1.
Revenue breakdown shows that 47% of Revenue is derived from Construction while 44% from Infrastructure Services and 9% from other.
Woodford has 14% of the Company SO, M&G almost 10%, Aberdeen almost 9%, Blackrock 5.85% and Aviva 5.3%. This is an extremely strong Institutional Ownership. For MJ Copiers Club, Kier is the biggest position with around 6% of the portfolio and currently c.18% profit on it.
3 Analysts that rated the company all gave STRONG BUY rating with 78% Upside potential.
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Investing in companies such as Kier Group is my favourite investment style. Buying stocks that are so massively undervalued reduces risk to almost 0 in my mind - provided that there are other similar assets from various industries and geographies. Kier price momentum has shown resilience almost $NSDQ100 and $SPX500 going up or down 4% a day recently. $UK100 is generally undervalued IMHO and Kier is one of its gems. Many people like to ask me what I think about $HMSO.L (Hammerson) Have a look at Market Cap and Revenue of both firms. In short, I am bullish on Kier and the main issue here is to watch the debt. With the contracts the Group is winning, I am not concerned at all and would actually welcome a divesture or capital raise.
We are going to see a bid for the whole company!
Look at the tradevolume today. Massive! Kier is in play, but no one has said it out loud.
Stevie, they want the business. It's not a question of 'waiting for administration' because administration isn't coming. Goldman Sachs/Guy Hands want the business now before the company recovers its share price.
Buying Kier's debt is not a big deal. Net debt is about £300m and Kier Living is worth at least £115m. They could buy the whole firm for about £200m and then refinance the debt with some new equity that Goldman Sachs would sell (it's their business; that's what they do). The opportunity will likely be gone in 12 months. The market likes the sound of it so far. Share price is going to rise into the close most likely and finish positive. The long financial winter is over for Kier.
Over on the other popular free thread that can never be named, there's speculation that Hands and Goldmans are trying to pull off a big equity buy-in to Kier. Makes sense, the shareprice is very low, the business is the sector leader in terms of contracts won over the last 12 months. I expect the ceo to restate the value of the business and a tussle over the shareprice buy-in. Personally, I'd rather they just sold Kier Living and worked the debt off. Net debt is around £300m with average working monthly debt of about £450m but Kier has good debt terms (less than 4% overall) and earnings of probably around £80m. When the cost-savings shown at £100m+ in the last RNS feed through, the debt situation will transform very quickly. A lot of eyes on Kier right now and I wouldn't be surprised if a takeover bid occurred soon.
Some interesting online discussion on Kier this weekend. Here are a few fragments.
A £1bn business currently valued at £150m. £3.5bn turnover and 2% net profit (before they pay it out in exceptionals -- and Davies is suggesting in the last RNS that that is over now). Last yr Davies said increased competition for framework contracts might push that margin down, but then kier managed a 2.5% profit in the next results. Also £3.5bn turnover was achieved in a Covid (recession) year. So net profit is nominally £70m, but with a BUILD BUILD BUILD Johnson administration, that is likely to be £4bn-upwards. Maybe very much upwards. I reckon net profits are conservatively in the range £80m to £100m. A reasonable p/e for the sector might be 12. Enterprise value currently is £310m debt plus £150m market cap. Call it £450m. IF the equity buy-in OR rights issue (whichever it turns out to be) raises one for one (ie perhaps doubling the shares in issue) or £130m plus £115m from Kier Living sale, plus perhaps £35 half-year profit, the business could have practically no net debt and a shareprice that goes to £2 very quickly (a p/e of only 8 on £70m profits) and MUCH higher on higher revenue and earnings.
Been a while since I posted here, but things are definitely looking up for Kier. The firm is reporting more positive trading in the latest update and the sale of Kier Living is potentially back on. Share price has been moving up for a few weeks now. Any thoughts on the share price movement if a sale is announced? I'm guessing at least double to hit the last few peaks at around 150p.
Davies got slapped down in the AGM last year over exec pay. I noted that he's pushed the AGM back as far as possible this year. Maybe he's learnt that it's a good idea to present good news first, ahead of a shareholder vote on the BoD's pay. I'm taking this as a sign that he's still striving to get a result on a sale of Kier Living or any of the other assets. Let's hope he succeeds.
Rizzy: we appear to be in loud agreement. I wish you luck with your forthcoming retirement and award you a longest-post-of-the-week nomination, with a possible contender nomination for longest-post-of-the-month.
Rizzy, there is something faulty with your reading of lists, your beliefs, and your conclusions. Firstly, Kier has frequently appeared on the monthly list and Kier has generally been in the top 5 of the year-to-date list. Last month they were at no.2 under Morgan Sindall. Two months before that they were at no.2 under Balfour Beatty (from memory). The plain fact is that Kier has now won more construction work in the last 12 months than any of its rivals. In terms of work won, it is the largest UK construction firm.
Secondly, contract wins take a few weeks to be announced after tendering has closed. Sometimes this can be a few months. Occasionally it's never, because the project gets cancelled. It is very likely that everything won in the last six months was tendered under Andrew Davies's leadership, and probable that most of what was announced in the 3 months before that was also tendered under his view.
Your comment about a 'driver' is stating the blindingly obvious. However, the firm usually gives an update a few weeks after the year end (30th June).