Kier group has had a rotten 12 months. An emergency rights issue in December has pushed Kier's [KIE] share price is down over 86%, rendering rival builder Balfour Beatty's 18% losses relatively minor.
Things got worse in June, when Kier announced underlying profits would miss expectations by around £25 million. At the time, Kier blamed rising costs and problems in its road, utilities and housing maintenance businesses.
Yet optimism is returning to the stock. Having bottomed out in July - where it reached a low of 58.4p - the share price has soared 122%. Powering this turnaround has been efforts to reduce costs, sell its underperforming homebuilding business, and improve the balance sheet. With Kier's full-year results out on Thursday, shareholders will be looking for proof the company is back on solid foundations.
What to look out for in the full year results
Undoubtedly, Kier's debt pile will be the big metric to watch during the results. For the year, Kier expects net debt to come in at the lower end of guidance of between £420 million and £450 million. This would normally be a good thing, if it wasn’t for the fact that Kier is also expecting a £100 million drop in revenue compared to last year. Investors will be looking for the company to update on revenue growth, initiatives designed to chip away at that sizeable debt pile.
Hitting savings targets
Sticking with cost-cutting, new CEO Andrew Davies’ Future Proofing Kier plan has already delivered £4 million in savings. The company hope to be cash flow and earnings neutral by the end of the year. Part of this plan has seen Davies announce 1200 job cuts as he seeks to focus on the firm’s profitable operations: line construction and road building.
Any update on this plan will be keenly watched by investors on Thursday. Not least the progress of its disposal scheme, which will include the sale of its highways operations in Australia, as Kier aims to make £55 million in cost savings by 2021.
Targeted cost savings by 2021
Regional and property development
Despite the problems with debt, Kier's regional and property development operations have continued to be strong performers, although third-party investment in this area has been a problem, mainly due to Brexit fears. These operations have seen Kier maintain its full-year guidance, despite the turbulent share price.
“I believe that these businesses will deliver long-term, sustainable revenues and margins and are inherently cash generative,” Davies said earlier this year
If the stock is to maintain momentum, then look for continued strength in the regional and property development numbers on Thursday.
|PE ratio (TTM)||4.59|
|Quarterly revenue growth (YoY)||2.90%|
Kier share price vitals, Yahoo finance, 18 September 2019
Time to buy Kier?
Going into full-year results, Kier’s share price dropped 4.48% on Monday – at least demonstrating that there’s some movement, and perhaps some value, in the stock, particularly for those hoping for a post-earnings bounce on Thursday.
On the balance sheet £643 million in debt far outweighs the £424 million in cash. Revenue growth has also been sluggish, coming in at 2.09% year-on-year, while profit margins are an almost non-existent at 0.69%. Yet, the stock is cheap, carrying a single digit P/E ratio of 4.67. If Kier can demonstrate on Thursday that it is starting to demolish its debt, then the recent share price gains could continue.