Kier Group – A Visit To Prison Has Excited Analysts And Institutional Investors
On Tuesday of last week Kier Group (LON:KIE), the leading UK infrastructure services, construction and property group, hosted a site visit to HMP Millsike for analysts and institutional investors.
Over the last few years, the group has been undergoing a major restructuring, through significantly reducing its staffing levels and selling off its public and private housebuilding operation.
Today the Salford Quays-based group is a strategic supplier to the UK Government with key strengths in the education, healthcare, custodial, transport and defence sectors, it is therefore well placed to benefit from increased national spending.
In the last year the group’s shares have risen 85% and in my view they still look cheap.
The Operations
The group has four main divisions – Construction, Transportation, Natural Resources, Nuclear & Networks, and Property.
Construction – Delivers public and private sector projects around the UK, across sectors including education, healthcare, custodial and defence.
Clients include – Department for Education, Ministry of Justice, Department of Health & Social Care, Ministry of Defence, and the Crown Commercial Service.
Transportation – It is a leading provider of sustainable transport infrastructure solutions designing, building and maintaining infrastructure for the highways, rail, aviation and ports sectors.
Clients include – Network Rail, National Highways, HS2, Transport for London, Local authorities, and Combined authorities.
Natural Resources, Nuclear & Networks – Delivers long-term contracts providing repairs, maintenance and supporting capital projects to the water, nuclear, energy and telecommunications sectors.
Clients include – Anglian Water, South West Water, Northern Ireland Water, Firmus Energy, Thames Water, SGN Natural Ga, EDF, and the Energy Canal & River Trust.
Property – Invests and develops sites across the UK primarily through mixed-use commercial and residential development, specialising in urban regeneration, last mile logistics and modern, sustainable office developments.
Clients include – Watford Borough Council, Liverpool City Council, Mole Valley District Council, Network Rail, and the Test Valley Borough Council.
Recent Results
The group declared its Interim Results to end December 2023 on Thursday 7th March.
They showed at half-time a 23% advance in revenues to £1.88bn, with a 7% lift in adjusted pre-tax profits to £49.0m, generating a 2% hike in earnings to 8.7p, while paying a 1.67p dividend per share.
At that time CEO Andrew Davies stated that:
“The past two and a half years have seen the Group achieve significant operational and financial progress and I am delighted that today marks a return to paying dividends.
The first half has seen the Group deliver strong volume and profit growth, increased orders and material deleveraging.
Our order book remains strong at £10.7bn and provides us with good, multi-year revenue visibility.
The contracts within our order book reflect the bidding discipline and risk management now embedded in the business.
I am also particularly pleased to report that the Group significantly improved upon its year-end net cash position with significantly lower average month-end net debt and has confidence in sustaining this momentum going forward.
The second half of the financial year has started well, and we are trading in-line with expectations.
The Group is well positioned to continue benefiting from UK Government infrastructure spending commitments and we are confident in sustaining the strong cash generation achieved over the last 18 months, allowing us to continue to significantly deleverage the Group.”
The Equity
There are some 451,575,387 shares in issue.
Larger holders include Schroder Investment Management (9.51%), BlackRock Investment Management (5.43%), Brewin Dolphin (5.01%), Charles Stanley (Investment Management) (5.00%), JO Hambro Capital Management (4.99%), M&G Investment Management (4.98%), Lombard Odier Asset Management (4.98%), Rathbones Investment Management (4.93%), Jupiter Investment Management (4.78%) and Aviva Investors Global Services (4.77%).
Brokers’ Views
There are some 6 analysts that follow the group, all of whom rate the shares as a Buy, with an average Price Objective of 193p.
At Berenberg, analyst Robert Chantry who was on the prison visit, retained his Buy recommendation on the group’s shares, with a 210p Price Objective.
He noted that the visit showed the ‘UK construction opportunity’ driven by the government’s £750bn commitment to infrastructure spending over the next decade, including spending on prisons, schools, hospitals, energy infrastructure and transport.
He commented that the Kier management is hopeful that it has demonstrated the group’s capability in delivering projects positioning it well for future tenders.
Chantry stated that:
“We continue to think current management has done a great job of stabilising the business and now returning it to a brighter and more sustainable future.
We still think that the shares are cheap at 6.4 times EBIT for full-year 2024, with a 15.2% free cashflow yield.”
My View
The Full Year 2024 Trading Update is due for announcement on Thursday 18th July, with the Finals due on Thursday 12th September.
I like the way that this group’s shares have been performing over the last year, rising from 77.20p at the end of May 2023, to a recent High of 151.60p last Wednesday.
Last Friday night they closed at 146.80p, from which level I feel that they are ready for a continuation of their recent strength.
I now set a new early Target Price for the shares at 177p.
(Profile 24.06.22 @ 71p set a Target Price of 90p*)
(Asterisk * denotes that Target Price has been achieved since Profile publication)
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