2018 turned out to be something of a nightmare for shareholders of Kier Group (LSE: KIE). Its share price dropped more than 60% over the course of the year chiefly because of the hammer blow announcement in late November that it was launching a rights issue to prop up the balance sheet.
Since then, news flow has been more stable, allowing the construction specialist to pull out of the dive that saw it sink to 16-year lows last month. First it completed the sale of road management business KHSA in mid-December to give it some much-needed extra cash. £25m, to be exact. And reassuring trading details this week have allowed it to cling on to fizzy share price advances since the turn of 2019.
A low, low forward P/E ratio of 5.8 times suggests that Kier has plenty of scope to keep charging in the weeks and months ahead. But I’m afraid that not even that rock-bottom valuation is enough to encourage me to buy. I still reckon the business is in danger of extending last year’s downtrend.
That trading statement I spoke of showed the company’s net debt dropping to £130m — down from £239m a year earlier at the end of 2018 — thanks to the aforementioned rights issue and putting it on course to meet management’s aim of bouncing into a net cash position at the end of the fiscal year in June.
In other news it said that in the period from mid-November to January 22 its Infrastructure Services and Buildings divisions had won additional contracts, giving it 100% visibility for this year’s forecast revenue and boosting its order book to over £10bn.
Good news, sure. But it still doesn’t make the stock a ‘buy’ for me.
The freshly-rejigged boardroom — chief executive Haydn Mursell was given the heave-ho in recent days too — said that it remains “confident that the group will meet its [fiscal 2019] expectations.” It’s quite possible, however, that forecasts will keep being chopped down by the City (the number crunchers are now predicting a 22% bottom-line fall in the year to June 2019). Worries over Brexit mean that the British construction sector continues to deteriorate and this could cause further turbulence over at Kier.
And if December’s disappointing cash call, in which just 38% of rights-issue shares were gobbled up by shareholders, is anything to go by, the FTSE 250 firm could well struggle to secure future financing should its debt-slashing plans disappoint and/or its key markets worsen.
City brokers are expecting the dividend to drop painfully in fiscal 2019, to 17.8p per share from 69p last year. Like their profits projections, though, their dividend forecasts have also been sliced down in recent months. The potential for more downgrades means that Kier’s inflation-busting 3.4% yield doesn’t appeal to me either.
The business simply carries too much risk right now to merit sensible investment. In fact, I think it has the capacity to devastate your share portfolio in 2019 in the current climate. There’s plenty of dirt-cheap income shares to help you to make your fortune, but I don’t think Kier is one of them.