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Will Kier's share price remain in the rubble?

Manchester-based construction firm Kier’s [KIE.L] share price has been pummelled over the last two years, and the rise of the coronavirus pandemic has only made matters worse.

Kier’s share price is down 46.6% year-to-date through 15 September’s close, and has plummeted by almost 94% from the same point in September 2018, when it was worth 909.14p.

Although the stock has had a tough couple of years, it showed mild signs of recovery this February, when it hit the 140p mark. However, the March sell-off swiftly brought Kier’s share price down again.

Even the UK government’s decade-long school rebuilding plan, which was announced on 29 June, has failed to bolster Kier’s share price in the short-term. Kier Group, which considers itself “the UK’s leading provider of school buildings”, has seen its share price drop by 46.9% in the past three months.

 

 

What is causing Kier’s share price slump?

Kier’s share price woes began back at the end of 2018 when the former FTSE 250 firm announced a £264m rights issue that relatively few shareholders opted for — only 38% of investors took up the call to bolster the business, according to a report in the Financial Times.

The firm was unable to recover from this, as headwinds continued to affect Kier’s share price over the next year. In 2018 and 2019, Kier lost lucrative contracts — including a £25m project to restore the Glasgow School of Art’s Mackintosh Building after fires ravaged it. In the 12 months to 30 June 2019, it recorded a £245m loss compared to a £106m profit in the previous year, according to This Is Money.

£245million

Kier Group's loss last year

 

On top of these factors, the construction sector as a whole has been buffeted by headwinds. Contractions in industry activity have been reported since the end of 2019 — even before the pandemic hit.

By March, the UK’s construction industry activity had fallen to its lowest level for nearly 11 years, according to IHS Markit/CIPS UK Construction Total Activity Index.

Kier did receive some positive news this year following the UK government’s pledge to build new schools, and in July it won 13 building contracts worth around £170m. In August, it was also awarded a £160m contract with Highways England.

These wins still haven’t helped push Kier’s share price higher, however, as many investors remain cautious of the firm’s intention to even out its balance sheet. The pandemic is likely to have taken a toll on Kier’s revenues, which could mean further job cuts and attempts to cut debt from the company.

 

Outlook

Despite the recent rocky period, Kier’s outlook isn’t all bad. Although Kier has been beset by challenges, it is seeing a steadier 2020 than many, according to Rupert Hargreaves writing in The Motley Fool.

“Over the past six months, shares in the construction company have held relatively stable, despite the broader stock market volatility,” Hargreaves wrote. “In some respects, the coronavirus crisis has been kind to Kier. The vast majority of the construction giant’s sites remained operational while the rest of the economy was locked down.”

“In some respects, the coronavirus crisis has been kind to Kier. The vast majority of the construction giant’s sites remained operational while the rest of the economy was locked down” - Rupert Hargreaves

 

The outlook for Kier’s share price in the short-term is uncertain, according to Hargreaves, but it could be an attractive long-term investment if bought as part of a diversified portfolio — especially as the current Conservative government plans to increase infrastructure spending.

Of four analysts polled by the Financial Times in September, two consider Kier a Buy, one an Outperform and one a Hold. Of the four analysts offering 12-month price targets, the median is 135p, which would represent a 163.4% increase on Kier’s share price of 51.25p through 15 September’s close.

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