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Steve your margin of 2.5% comment won't happen. A number of companies are refusing to take Utility and Highway work as they deem it unprofitable (Balfour, Amey, even Costain). When you refuse to bid it means the margins have to go up or work doesn't get done.
Now, let's just suppose the Govt do actually get their act together and do infrastructure spending. You can't go and grow another Balfour or Kier quickly! You just don't have the skilled headcount in this country to do all this extra work, so work will need to be prioritised and if you want it done surely margins will need to look more handsome than before to move you up the shortlist. Remember after Brexit's transition period end getting headcount from anywhere else will be troublesome - not sure the government will have their eye on the ball regarding any skilled labour movements to this country until Covid is done.
I saw a number 30K sells and 3 x 100K sells through the day (one making the new low). I suspect it's ASL selling some more of there near 14%. They have too much to get out before the trading update so I suspect this is position trimming in line with there in and outflows of income.
So I suspect an RNS on Mon / Tues showing their new position.
Hi Wyndrum,
I think all your point are valid, but maybe as I'm long I have too much cognitive bias and I think Kier can dig out.
I come from a realm where the CEO is absolutely accountable to the shareholders and not specifically the banks. I also run a property development company whereby I'm quite often in debt up to 8-10 times my profits (thankfully not at the moment!), so I realise this can be difficult time. However I did read a piece in xonstruction news about the last RI whereby the political backdrop at the time was banks were hunting for the next Carillion where the writer explained if Carilion's demise hadn't occurred then Kier's debt would not have batted an eyelid.
Please note that Kier have many bankers (just see their website for the list) so they may be able to negotiate.. I don't know! Frankly I think the bank's confidence in Andrew Davies is the key for how they handle the debt. One thing is for sure the banks will not ever want to own the company!!!
This is why I don't think Kier will be doing an RI anytime soon. IAG have a fully underwritten RI and to get the shares away they are discounting by 36%.
If Kier were to do that at this share price then after fees and underwriting insurance they'd be lucky to get £40M back. Also after the RI 2 years ago where the underwriters got indigestion from unsold shares I'd suspect the discount would be steeper than IAG's for the insurance element not to be prohibitively expensive.
As I said before, dig out, show EBITDA profits consistently for next 2 years for the share price to rise then think about it.
GLA
I see pruning back 1.5% and still owning 14% of the company as not getting rid at all! They've had 50 trading days and could have got rid of a lot more. They did their pruning typically in 150,000 chunks on a few days.
My point is they are standing with the company as they still own buckets of it.
All housebuilders are down about 1%. Probably on Barratts comments and abolishing the special dividend. Housebuilders and economists are taking it as a honeymoon period that will end when reality hits. Hence their shareprices are lowish to trend which wont help KL. All KL can do is keep building and help shore up the share price.
Costain just lost an arbitration and saw an impairment charge of 45million. The arbitration is non-appealable. Companies in these road building schemes need to have more profit to reflect this. All you need is one of these and you are toast.
It does seem unfair that councils want you to have a 2% margin and then still stiff you. Cost's share price is down in the high 30s again.
Thinking this whole sector needs to realise they need to bolster margins. Hopefully the frameworks allow that.
Good Luck All
An RI cant happen here in the doldrums.
Only way to do this as I said earlier is make profit (despite huge interest bills) and dig out consistently at each 6 months until consistency of earnings is achieved. Then the share price will improve and you can think about it, but there is no point in an RI at these levels.
Remember , despite the last debacle, there would be huge fees and discounts so even a 1:1 would probably 9nly yield 50million after if someone was mad enough to underwrite it.
It just cant happen
Good comment JGH.
Interestingly I was reading a piece in the Construction news from just after the abomination of the last RI. The big issue with debt then was the following
Everyone scared and expecting another Carillion
Construction cycle was at a low ebb
Last CEO couldnt be trusted to just spend money expanding the business rather than being a traditional conservative company
They were at paims to say if Carillion hadn't happened the debt wouldn't have forced an RI.
Fast forward to today. We have a conservative CEO, construction cycle couldn't look better (although how much from this govt is recycled commentary we don't know), but debt pretty much where it was last time around prior to RI.
Let's see how this plays out. I suspect banks will be a bit nervous as wanting to protect their balance sheets, but they are much healthier than 2008 and have been ordered to postpone dividends so fingers crossed on the covenant waivers
So Kier were announced onto Thames Water frameworks. BBY will no longer tender for anything but Anglian water.
Reason is margins aint there.
Decoded that means our order book is huge and growing and we need all our staff doing that so we wont entertain the chaff. Hopefully Kier can aspire to this one day too.
Wyndrum, totally agree. Also I guess KL value has gone down 33% or more if you were to look at housebuilder share price delta for pre and post covid.
It's odd as house prices appear to be acting strangely - almost like a gold hedge at the moment- but for how long who knows!
I think the other things as well as margin that need to be thought about are the £100m operational savings (per trading update) and no divvy. This will help too, but I do agree shovelling out from £450m debt will be difficult. It will be a multi year effort.
Good luck all
Rizzy, whilst the average per week of 80M per week is true there will be some extremely big one offs like HS2, Cross Rail, etc that mean the weekly one off announcements do no need to add up to anything near £80M. I dont think the order book is a problem - the low margins and how many years to pay off the debt principal plus accruing interest is the issue.
As you can imaging cranking the profit margin from 2% to 3% or 3.25% on a £4Bn order book would make an amazing difference.
Good luck all
ASL have sold 1.2% of stock from 1st July, still having just shy of 14% invested. They've had 5 weeks to get rid of a lot more than that, but haven't. You've got to think they, owning 14% of the company, must have spoken with the board of directors to find out their strategy and probably understand the mood music. Yet they haven't sold.
So I'm not sure things are as dire as the share price is stating. I do think AD needs some coaching on outward messaging. I've said it before - to just float that 1 line quip in the trading update - here it is again for the everyone
" continuing to implement a range of self-help measures, driving a further increase in the Group's operating cashflows, continuing the process to sell Living ----> and a potential equity issue. <--------------"
These are the words that have driven the share price down. AD is totally out of his depth with messaging - you don't just throw that hand grenade in their without some decent reasoning behind it. I'd have kept quiet, got my ducks in line, and then announced it. Right now we're an £80M company with £445M of debt. How is an RI going to address that. Perhaps an RI + KL sale would, but as I've said before share prices for housebuilders are distressed. So let's say you sell KL for £60M-ish and RI for 80M in 2:1 share dilution. Excluding the fat cat fees that everyone gets (remember Cobham?, remember Carillion?) that's £140M leaving about £300M debt to "manage". I would say there's more value in KL longer term than selling for that.
So those 5 words in the Trading Update have messed up an RI strategy because there was no information with it and the share price is really down because of it making an RI of no value now.
Good Luck All.
I think the words "manageable debts" is key here.
It's a good question, and I'm on the fence with it, given despite what lots of other people say about their debt, they'll be paying 8-10% on their debt. So £40 to £50M. I've seen the comments where people argue "oh, the BOE rate is this, so it must be lower". That's pure baloney - the debt interest rate is managed by risk. Now, the fact they've gone through their covenants suggests whilst their borrowers see the risk, the fact they've not pulled the plug I'd suspect they're comfortable.... FOR NOW!
I don't actually believe £50M interest on debt is too much for them to pay, but everyone knows for the Phoenix to rise from the ashes it needs to make a profit on top of debt repayment AND it needs to pay a dividend at some point. Those things add up. They're not the UK government so can't just endlessly issue bonds (at near 0%) to resolve the debt.
I also think Andrew Davies opened his mouth too soon regarding an RI. I've also heard words like "oh, he's the CEO so he's got to be up front and transparent about anything like that". Well yes, to a degree, but not nearly 3 months before the official trading figures. You'd do it with details - not as nearly the last line quip in an update he did. So whilst I think AD is operationally good I think his methods of delivering a shareholder message are hopelessly off tone. In this case I think he's blown it - there will not / can't be an RI at these values.
This I think means back to storyboard 1 - manage debt, cost savings, sell KL, etc. However I wouldn't be selling KL for distressed prices. If you think about it, every housebuilder is priced some 40% lower as a PLC than before Covid - so I'd assume someone wanting to buy KL also wants that discount too - so I'd wait. There may be more value in it anyway depending on where their landbank is after the announced proposed changes to the planning system (if their land bank isn't in Conservation Areas, which I'd assume most of it isn't, then permissions will definitely be easier).
At 60 pence this is worth £90M - How on earth will they get an RI off that is meaningful in plugging the debt? It's not going to happen!