Posted in the Sunday Times...16 Sep 2019 09:00
The construction giant Kier will mount a defence this week against hedge funds that have placed a huge bet against its shares, with a pledge to cut costs and debt.
The FTSE 250 builder became the third-most shorted stock on the London market last week. Hedge funds — including several that bet against the collapsed construction firm Carillion — have built a 17.3% short position in its shares, according to data from Markit. Short-sellers borrow shares for a fee and then sell in the hope of buying them back later at a cheaper price.
Kier, which is run by chief executive Haydn Mursell, has come under pressure from institutions such as Marshall Wace, BlackRock Investment Management and GMT Capital since the start of the year. All three profited from betting against Carillion. The short position has risen from less than 2% at the turn of the year and peaked at almost 18% last week.
Some of the scrutiny has been prompted by debts at Kier, which worked on London’s new Crossrail Tube line. Net debt has grown from £99m in June 2016 to £239m by the end of last year, although Kier insisted this was easily serviceable at less than one times core profits.
However, short sellers have zeroed in on the growing gulf between Kier’s year-end and average debt, which stood at £350m at the last count. Experts argue that average debt is a more accurate measure in a construction business, as it is not flattered by the usual end-of-year scrabble for cash.
Analysts have also highlighted a supply chain finance scheme used by Kier to pay suppliers and subcontractors early. That liability of £150m to £170m is not included in net debt but reported under “creditors”.
Mursell, who was finance director before becoming chief executive, is expected to use Kier’s annual results on Thursday to lay out plans to reduce debt and make the company more efficient.
Shares in Kier have fallen by about a third since the start of last year and closed at 983p last week, valuing the builder at £938m. They were given a 2.3% lift on Friday.
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