Keller Group – a market leader, a class act and robust

I have followed this company for over two decades and always liked what I saw about its management, its markets and its potential, writes Mark Watson-Mitchell. 

Every day, people around the world live, work and play on ground prepared by Keller Group (LON:KLR), the world’s largest geotechnical specialist contractor.

The group, which can trace its roots back to 1860, went public in 1994. Today it employs over 10,000 people and operates in some 40 countries across the world. Spanning six continents it has 22 business units.

Although geotechnical solutions are a small, niche sub-sector, representing just 1% of the construction world, Keller’s marketplace is worth over $25bn. It does not operate in China, Russia, Japan or Korea – if it did then its market would expand to $55bn globally.

Its sub-sector has favourable market trends as well as the ability to drive higher margins.

In terms of its wide product portfolio, its branch network, the size of its equipment fleet, its technical leadership and its operational track record, Keller is already the sector’s number 1 business worldwide.

However, the group’s declared vision is to be the world’s leading provider of its services, the preferred international geotechnical specialist contractor, strategically focused upon sustainable markets and attractive projects. Annually the group tackles an unrivalled 7,000 projects.

Those projects, which cover advanced heavy foundation and ground improvement techniques used across the entire construction sector, range in scale from £25,000 up to over £100m. The typical contract is short term and valued at around £325,000.

Its products are used across the construction sector in infrastructure, industrial, commercial residential and environmental projects.

It offers micro-piling, ground anchors and grouting services, and a range of piling solutions, while its Australian operations specialise in near shore marine piling and construction.

The group has 73,121,810 shares in issue. Its large institutional holders include FIL Investment Advisors (6.53%), Merian Global Investors (5.88%), Schroder Investment Management (5.38%), Aberforth Partners (4.98%), Norges Bank Investment Management (4.95%), Artemis Investment Management (4.94%), Franklin Templeton Institutional (4.93%), Standard Life Investments (4.78%), Baillie Gifford (4.77%), and Dimensional Fund Advisors (3.43%). The company holds about 1m shares in treasury (1.4%).

Last Tuesday the group reported that the half-year period ended 28 June saw revenues down just 5% at £1.04bn, while underlying pre-tax profits were up a very impressive 39% at £40.7m, giving earnings a 37% uplift to 39.5p per share.

Net debt was down 54% at £155m, while it has its strong liquidity at £595m of undrawn facilities.

Its order book is steady at £1bn, which should more than support group trading in the balance half year. However, if recent order fall-off is continued, that might make for lower books going into 2021.

Those really were inspiring results considering the impact of Covid19 upon its global business.

CEO Michael Speakman informed the market that he was confident of “our strong financial performance in the first half, further good progress in the implementation of our strategic actions and expected resilient performance for the full year. The late cycle nature of our business makes us naturally cautious about the short-term economic outlook and we are proactively managing the business accordingly. The long-term fundamentals for Keller continue to be strong and we remain optimistic about the future trading prospects and strategic opportunities for the group.”

Broker’s estimates for the current year suggest revenues of £2bn, £63m pre-tax and 63p per share in earnings.

Next year to end-December could see sales of £2.3bn and £84m pre-tax, giving 84p in earnings.

Following its results last week, a number of brokers upped their ‘buy’ views on the group’s shares, with Peel Hunt going for 710p, Numis aiming at 835p and Liberum Capital at 900p.

The shares, which in the last year have peaked at 899p and fallen to 419p at their worst, closed at 643.5p on Friday evening.

I have followed this company for over two decades and always liked what I saw about its management, its markets and its potential. Pandemics can almost be seen as a temporary disturbance to a 160-year-old group.

A good ‘lockaway’ of a class company’s shares at these levels appears to me to be absolutely right.

I now fix a 750p target price.