Stocks in Focus: Kier Group

Thursday 27 September 2018

This week NW Brown is revisiting Kier Group, the UK-based construction, services and property group following the release of its preliminary full year results last week.

The company enjoyed good performance over the last year with underlying revenues up five per cent and profit for the year up 13 per cent. All of the divisions posted positive results, driven by Property which has benefited from a joint venture strategy aimed at providing capital efficient sources of funding.

In addition, the company announced a record Construction and Services order book of 10.2bn demonstrating a positive outlook for the company. Investors welcomed the news and the share price went up over three per cent on the back of the results.

Despite Kier performing consistently well in recent years, the construction sector has been out of favour with investors and the share price has subsequently underperformed. One of the key concerns is the level of net debt, which currently stands at 186m at the year end.

Management of Kier have acknowledged this concern, and reassuringly have recently launched the 'Future Proofing Kier' (FPK) programme, which aims to improve operational focus and efficiency, improve cash generation and ultimately accelerate the reduction in debt. Part of this will be achieved by disposing of some of the non-core assets within the company in order to simplify the business. Going forward they expect to generate 20m-40m of free cash flow per annum which will be initially used to reduce debt and then finance the ongoing FPK programme.

Kier Group has transformed well over the last few years and now enjoys market-leading positions in many of its key markets. Performance continues to be on track and the new FPK programme has certainly been well received, but investors will be keen to see the benefits start to feed through for concerns to ease.

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