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Yet more contract wins for Kier.
Kier Places has secured its place on the £600m YORbuild3 Minor Works framework, appointed on all five sub-regional frameworks for Lot 2, which covers new build and refurbishment projects valued between £1m-£4m.
https://www.kier.co.uk/media/news-releases/kier-places-appointed-to-600m-yorbuild3-minor-works-framework/
Kier wins slot on £500m canal and rivers framework (one of only two contractors on the framework)
https://www.constructionnews.co.uk/civils/kier-wins-slot-on-500m-canal-and-rivers-framework-10-08-2022/
And we're only halfway through the week. More contract wins to come?
wtfau2, that was the big contract announcement today. £400m is a major project. Kier is close to finishing another prison (Five Wells for £253m) and last week Kier was awarded the Glasgow prison build too. Last week saw a load of contract wins and this week has seen a load more including these below. The firm is on a roll. Order book was already up by over 25% on last yr by the end of June but now it must be much bigger. Share price hasn't even moved. Annual report numbers are out in mid-September. Very, very undervalued imo. For once I agree with the brokers on this one, a triple-bagger short term, and maybe five times by late 2023. Here's some of the news this week in addition to the huge prison contract mentioned earlier:
Kier awarded £36M Liverpool school building contract
https://www.constructionenquirer.com/2022/08/03/kier-signs-off-36m-liverpool-school-job/
Kier will build North Lanarkshire’s Bargeddie community hub, which includes the new St Kevin’s Primary School and a community facility
https://scottishbusinessnews.net/hub-south-west-scotland-appoints-kier-construction-to-deliver-st-kevins-community-hub/
Kier awarded £25m Walsall hospital scheme
https://www.theconstructionindex.co.uk/news/view/kier-and-archus-in-for-25m-walsall-hospital-scheme
YORbuild has selected Kier and other firms for its £600m minor works framework:
https://www.constructionenquirer.com/2022/08/01/yorbuild-selects-firms-for-600m-minor-works-deal/
Btw, @trade67, thanks for all of the updates. That list of contract wins is very impressive, coming as it does after of the major wins mentioned in the trading update. Looks like that 26% increase in orders might keep going up.
Second table on this page (link below) shows the contract totals won for the rolling 12 months prior. These are actual project contracts, not frameworks. Kier is in the top spot, beating sector peer Morgan Sindall by almost half a billion pounds. An outstanding performance imv.
https://www.constructionenquirer.com/contract-leagues/
Kier has paid off all of its covid loans and closed out its KEPS scheme which was seen as some as pushing debt off the balance sheet. Closing KEPS will have meant finding about £50m I think, so the fact that the end of year net debt is also eliminated (the firm has net cash now) suggests that Kier managed to generate a large amount of cash from its profits. It's looking like the September full report will show some very healthy numbers for turnover, profit margin and cash generation. Just seven weeks to go. From memory, I think Kier might even issue the full numbers before the annual report (due on 15th September) so we might get the chance to assess Kier's success much earlier. Either way, the current sp of 75p and market cap of £340m looks way, way too low. Probably a 2023 price/earnings of about 2. I think I said this earlier, but I would expect Kier's p/e to be nearer 10, which is between 3 and 5 times the current share price. Dividend is being rumoured by Peel Hunt (if I read them right) for reinstatement around 2024. Every way I look at this, it looks like a very rare bargain.
Kier has the size and financial strength to flourish in this climate. Many others are struggling:
More than 350 construction firms have defaulted on their COVID loans at least once. Around 2.5 per cent of all the construction firms who claimed COVID loans have defaulted on repayments, which could foreshadow a wave of administrations.
https://www.constructionnews.co.uk/supply-chain/hundreds-of-construction-companies-default-on-covid-loans-15-06-2022/
In these uncertain times, there will be a flight to quality. That's at least partly behind Kier's recent blockbuster contract wins, including many in London imo. Kier is known as a regional construction firm, working across the UK, but the number of London projects which has won recently suggest to me that it is now sweeping all before it in virtually every market.
It's looking like turnover and profit will be revised upwards. At 26% more orders, even in this inflationary year, the business turnover will be £5bn plus. Kier is saying 3.5% profit. That's £175m. Dividends can't be far away now. 2023 p/e is just 2 and the firm has NET CASH at year end. Did you ever hear of such a thing? Peel Hunt's analyst is right. Re-rating is needed now. I think this will be £3 in 12 months, assuming the war in Ukraine doesn't escalate.
TRADING
The Group's full year results are anticipated to be in-line with the Board's expectations. This reflects a strong operational performance despite inflationary pressure which the company remains confident it can continue to mitigate going forward.
These results also reflect the cost savings realised in responding to the anticipated reduced volumes in the Construction division during the financial year.
ORDER BOOK
Despite political and economic uncertainties, core markets remain favourable. The year-end order book is expected to be in excess of GBP9.7bn, a significant increase of c.26% against the prior year (FY21: GBP7.7bn) reflecting a significant number of contract wins across all divisions.
Long term framework positions, as well as the pipeline and fees from the Property Development division, are excluded from the order book and represent an additional opportunity.
yuri you've missed the point. Kier has just been through three years of cost-cutting, redundancies, rights issue funding and sell-offs of assets. The shareprice values the company at barely the value of the cash injection that went in a year ago (£330m). But Kier has a £4bn turnover and is one of the largest UK construction firms and now has very low net debt - possibly even cash positive. Like you, the market only sees the recent history, not the future profitability even though profit margin has been going up over the last year or two. It's a high-profile business even though it currently languishes outside the FTSE250. If Peel Hunt is right (and I think they are) the update tomorrow will show that the business has fully recovered from its brush with disaster and is worth a great deal more than a market cap of £330m. If half-year profit comes in at £50m (ie a full year 2023 circa £100m) then a market cap of £1bn would give a price/earnings value of just 10. That is still very low and a shareprice of about £2.15, THREE TIMES THE CURRENT SHARE PRICE. So it all depends on what gets reported tomorrow on whether it's a big day, but the potential is clearly there.
Should be a big day for the Kier shareprice tomorrow. Most of the construction firm reports that I'm seeing are showing that inflation has not had a dramatic impact on profits. If Kier is making a profit and continuing to reduce average debt (which is not large now) the market should re-rate the shareprice. As Peel Hunt points out, 2023 p/e of 3.7 is incredibly low. Their analyst is targeting £2 and I reckon that is about right for now. If the Ukrainians continue to hold their own and inflation begins to subside, I see every chance that the shareprice will treble over the next few months. GLA and DYOR.
RedbullRJ; I liked this description of Kier Group. I reckon Peel Hunt's analyst is exactly right. Kier's shareprice has fallen on worries about inflation and the Ukraine/Russian war but now that the latter seems to be heading towards a level of stasis, probably with a frontline which will shift back and forth for a few months before the Russians attempt to settle on taking what they've managed to grab so far, I think we will see some of those worries begin to subside. It's no longer looking like a potential global conflict.
Peel Hunt says that Kier is an “incredible buying opportunity” at 71p. It notes the FTSE All-Share company has de-rated by 45% in the last year to 3.7 times 2023 earnings, despite unchanged estimates.
For me, those are the standout numbers and the right conclusion. Kier is an incredible bargain right now. It was only a few years ago that this firm was paying out £50m a year in dividends. I reckon the rest (below) is spot on too.
Analyst Andrew Nussey believes the improving quality of earnings and free cash flow remain materially undervalued, leading to a 200p target price. He added “Management is delivering, and we believe just continuing to meet expectations should drive a rerating.
“However, we see potential upside risk to 2024 estimates through organic outperformance, as well as from modest bolt-ons. The likely return to the dividend list 2024 is notable, but the strength of the free cash flow could unlock other accretive actions.”
https://www.ii.co.uk/analysis-commentary/are-these-six-fallen-mid-caps-now-good-value-ii524630
When Peel Hunt says 'accretive actions' I reckon several things are possible, like the sale of the old Kier HQ which is a huge estate, capable of being a housing development and probably has price tag of somewhere around £50m by now. Also there was a story doing the rounds recently about Kier buying Tilbury Douglas, the rebranded Interserve construction business, for not much money. Kier's had a chequered history with aquisitions but a low cost merger with Tilbury D might be a good idea if the management teams can incorporate it easily into the Kier universe and reduce back-office costs.
spunken, you think the airline industry will hire 20,000 people in one month? Wow! Where exactly will these 20,000 people come from? I don't think you've been keeping up with current events - unemployment is lower than before the pandemic. We have practically full employment in the UK. On top of that, about half a million people have been removed from the workforce through retirement and emigration - many Europeans have left the UK due to brexit and the increasing of cost of living here. I reckon the airline industry will try to recruit using its previous wage scales and recruitment strategies and then come up short. Slowly, management will realise that wages are going to have to go up substantially and conditions will need to improve in order to attract staff from other industries. All of this will take months. For flight crews it will take even longer. Covid has meant fewer pilots training and qualifying. The shortfall will be many thousands. It takes about two years to train and qualify as an airline pilot. I doubt easyjet will be able to fly as many planes as it did in 2019 even by the end of NEXT year. Get ready for a re-rating of easyjet's earnings. Johan can try to put it off, but eventually those Q3 and Q4 numbers are going to show the reality of the situation - more losses and eventually, once the business gets back to profitability (perhaps in 2023) much lower profits.
forevernever, you are sadly wrong. easyjet did not take a pessimistic view of business. It took an optimistic view and said 2022 would be close to 2019 in bookings. But the management did not make sure that it had the staff to run those flights. You think it will only take a month to staff the business adequately? easyjet itself does not take that view now. Today hundreds more flights have been cancelled on top of the cancellations that were announced a few weeks ago. It takes years for flight crew to gain the qualifications and experience to fly airliners. All of the airlines are recruiting. easyjet does not have any market to itself. Staff who had contracts amended and pay cut now have the whip hand. The boot is on the other foot. Who will they work for? BA? Ryanair? Wizzair? Virgin? Jet2? Or some other industry altogether? Wage inflation is now in progress and the paycuts are more than reversed. All of this bad news for profitability. easyjet's plans to fly 95% of 2019's schedule is now in tatters and I imagine this will be yet another loss-making quarter. About a month from now we should get an update on this latest catastrophe. Investors in easyjet will soon wake-up to the fact that this share is heading for hard landing and will bury its nose in the runway.
scooby... it's not a matter of 'a few quid'. Read the news. Consumer spending is impacted right now by huge increases to the cost of living especially for domestic energy, car fuel, food and taxes. Big rises will be coming for mortgage holders soon as interest rates go up. Evidently you are one of the out-of-touch privileged few - easyjet's market is the budget conscious-many and soon they won't have the several thousand pounds needed for a family holiday. Take a look at hotel rates - they are through the roof right now. The pound has dropped 5% against the Euro and 10% against the dollar recently. More falls for sterling are on the way as Brexit costs become better understood, and when momentum gets behind the re-unification of Ireland and the actual loss of part of the United Kingdom, we will see parity or less with the Euro.
Meanwhile easyjet is alienating about 10,000 people a day by cancelling tickets that it willingly sold in recent months. These are existing customers. At the same time, the daily news carries sad stories about broken-hearted families, wailing children and huge compensation claims and the wrangling with airlines, with easyjet featuring prominently. It is a marketing catastrophe. There will be a huge impact on future bookings and an immediately big impact on compensation costs.
One of the worst things about all of this is that the CEO has been saying since January that bookings are close to 2019 levels, and yet easyjet hasn't had the staff to service this demand, even though they claim to have known for months that demand was returning. This is mind-boggling ineptitude. Why sell tickets, take customers' money, and then disappoint them? easyjet's reputation has been comprehensively trashed over the last few weeks and the trashing continues today, with news of even greater cuts to already sold flights. The end of Q3 arrives in a little over a fortnight and then we will soon after get an update from management, attempting to downplay the damage done to the business, with no mention of the compensation-provisioning in the accounts. easyjet's attempts to capitalise on the 'pent-up demand' has fallen flat on its face and now we are likely looking at yet another loss-making quarter. The management team needs to change. That will of course mean a massive kitchen-sinking exercise and writedowns and further shocks to the shareprice.
I reckon this business has 2023 potential to make perhaps £200m. Since easyjet operates in a non-expanding market and is a very ordinary transport business with high risks, reliant on direct-to-consumer trade, and we are about to go into a fierce recession, I'd say the business should have a forecast price/earnings ratio of about 10. That means a market cap of £2bn. Current market cap is £3.5bn. So I see the shareprice falling by almost half from today to about £2.50 so get ready for a continuing rout of the sp.
This is beginning to feel a bit like the BP Gulf of Mexico disaster to me. No one realised how bad it would be for BP when the first reports started coming through of an oil leak on the sea bed. Investors think this is just another volcanic ash/traffic controller strike kind of short-term problem for aviation. I think this might be altogether different because unlike ash clouds and strikes, finding qualified aircrew takes a long time. Also inflation will lead to a consumer spending crisis. It's beginning to be seen in the housing market - mortgages at a two-year low point and heading lower. Negative press is going to follow easyjet for months, fuelled by the industry blaming each other and politicians (and others) jumping on the side of consumers to aid their own popularity. The noises are only just beginning. So far the consumers are only whining like victims; soon they will get organised and be more aggressive. Consumer protection will likely be increased again, creating more costs for the industry. It's always hard to recognise these things at the beginning and I might be wrong, but I'm getting a strong sense that the unique circumstances of war in Europe, post-pandemic anger and disappointment, inflation and soon a famine in Africa, will combine to make people feel that flying is simply not worth the hassle this year.
The other thing working against easyjet in particular is a lack of upfront honesty from the management team. There have been a number of pronouncements and claims which are patently untrue, and this tendency to be economical with truth may be about to catch up with them. Firstly, claiming that flights were being cancelled due to an 'IT glitch' has proven to be untrue. 200 flight cancellations plus another 20 or more every day for ten days is not something that happens because of an IT glitch, and now other stories are coming out, about staff shortages. The claims in January that business was near 2019 levels was not borne out by the subsequent finance figures for Q2 (another loss-making quarter). And the claim during the last rights issue that Wizz Air had made a bid for the company was almost certainly a complete fabrication designed to make the business seem more attractive - that so called 'bid' was never confirmed as being true by anyone and crucially, was never put in front of shareholders, which it would have been if it had been genuine. My opinion is that the CEO is a slippery character and you can fool all of the people some of the time, and some of the people all of the time, but eventually he will come a cropper.
Profits will not be big. They might even be non-existent. Most of the chaos that we are seeing this week come from bookings that were made in Q2. You will remember the CEO's claims in January and April that summer bookings were near to 2019 levels (best year ever for airlines). But even with this volume, Q2 made a bigger loss than Q1. Why is that? My guess is inflation costs and the carrying fwd of credits on cancelled flights from the last two years.
If you were a parent, would you book expensive tickets on an easyjet flight now, after seeing all the stories of ruined holidays and distraught parents and children stuck in airports or having to go home? Many will wait until next year. When we get to next year, we will be in the midst of a full blown recession caused by big hikes to mortgages as interest rates rise, huge energy and food cost inflation and worries about job security. The market for flyers is shrinking and we are seeing the illusion of a busy market, caused in reality by staff shortages in airports and airlines.
The prospects for easyjet look bad, going from pandemic to recession with huge wage inflation for airline staff, massive fuel increases and airport handling and the permanent loss of much business travel due to online meetings which have become the norm.
neoninvestor, you are completely wrong. THERE HAVE BEEN TWO RIGHTS ISSUES AND EASYJET HAS TWICE AS MANY SHARES NOW AS IT HAD IN 2019. £5.20 TODAY IS THE SAME AS £10.40 IN 2019.
The market capitalisation is the share value of the company (number of shares multiplied by the price) and currently it is close to 2019 levels, the best year for airlines and a time when easyjet paid dividends, made a profit, and had low debt.
TODAY EASYJET IS NOWHERE NEAR BEING THE COMPANY IT WAS IN 2019. It has lost £1bn in 2020, £800m in 2021, and will probably lose another £800m by the time we get to the end of this year (end of September). The company has £600m in debt and is probably at least two years from paying a dividend, assuming that it becomes profitable in 2023, but what that level of profit will be, no one knows because we will probably be in a big recession at that point.
ONTOP OF ALL OF THAT, BUSINESS TRAVEL HAS BEEN PERMANENTLY REDUCED BY THE USE OF ONLINE MEETINGS AND FAMILIES HAVE GOT OUT OF THE HABIT OF TAKING FOREIGN HOLIDAYS. Also, you can't rule out the likelihood of yet another rights issue - easyjet will not want to carry a lot of debt when interest rates start going up.
As Johnson pointed out to his cabinet recently, no one there is old enough to remember the last energy crisis when Britain had a three-day working week. ALSO just four decades ago we had interest rates at over 15%. If rates go up to just 5%, that will add £30m in costs that ezj cannot afford right now.
Whatever happens, I reckon it's safe to say that the future for easyjet will not be looking like the past. This company is heading towards a market cap that is more in keeping with its earning potential imv and that will probably be a market cap of £2bn or less and a share price of around £3 or less.
It'll get there eventually greedo. EZJ's ceo was talking about customer volumes at 2019 levels - turns out that many of them are credit customers with revenue booked in previous quarters and when they all booked to go away this month, the loss of staff due to cost-cutting has crippled the business and the airports. The compensation will run to many many millions I would guess. Worst of all is the bad publicity. Market cap for EZJ is not far off 2019 levels (a good year, with profits, dividends, and low debt). There's no way this firm is worth £4bn today with the losses continuing to rack up. I reckon half that, so under £3. The market will catch on in the end.
Stille, midweek LGW to Faro return in mid-September is £75. I doubt very much that that is twice 2019's fare. Bookings are most certainly NOT 'through the roof', nor are they on the floor, but with everything that's going on (crew shortages, inflation, consumer cost-of-living crisis) I reckon easyjet is still losing money.