Kier shares are tanking. What’s the best move now?

Kier Group plc (LON: KIE) shares fell 36% on Friday and are down 12% today. What’s going on?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Kier (LSE: KIE) shares have had a dreadful run recently. On Friday, the price slumped 36%. Today, the shares are down another 12%. Overall, the stock is down nearly 90% in the last 12 months.

Here, I’ll take a closer look at what’s going on at the embattled construction services group, and explain how I’d approach Kier shares now.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Basket case

It’s fair to say that news flow from Kier over the last six months or so hasn’t been good. For example, in late November, the group announced an emergency rights issue to raise £264m, creating 65m new shares. At the time, it sold these to investors at a near-50% discount.

Then in January, CEO Haydn Mursell stepped down with immediate effect and, in May, it also announced finance director Bev Dew will leave the group in September.

We also had a profit warning earlier this month in which the group announced underlying operating profit for the year will be about £25m lower than previous expectations, on top of an announcement in March that debt will be higher than previously expected, due to adjustments.

Much more recently, the shares slumped 36% on Friday after a newspaper reported the company was rushing to sell its housebuilding business at a discount.

Then today, the group announced that, after a strategic review, it will be suspending its dividend payments for FY2019 and FY2020 (kudos to Roland Head who predicted this). It also has plans to simplify the group’s portfolio by exiting non-core activities and reducing headcount by 1,200.

So overall, Kier has had a shocking run. And don’t forget, this is a stock Neil Woodford has had a large position in. He’s probably been forced to sell the stock in order to meet fund redemptions and this won’t have helped the share price.

What I’d do now

What’s the best move now then? Personally, I would continue to avoid the stock. While today’s announcement of a group simplification and a dividend suspension is a step in the right direction in terms of turning things around, I don’t see much investment appeal in the shares right now.

Yes, the shares are cheap (the forecast P/E is under 2), but the company’s debt problem is a long way from being sorted out. I would want to see significant evidence of debt reduction before buying the stock.

Additionally, it’s worth talking about short interest here. I originally warned about this issue in September after I noted short interest in Kier had surged to 18%. At the time, I said: “It’s worth being cautious towards the stock at this stage.”

Fast forward to today and the shorters have absolutely cleaned up with Kier, profiting nearly 90%. However, the stock still has a relatively high level of short interest at 6%, suggesting hedge funds believe the shares will fall further. As such, buying now is a dangerous strategy, in my view. 

Of course, with the shares down nearly 90% in a year, there’s a possibility they could rebound if we see some good news. However, for now, I’ll be avoiding the stock as I think the investment case is too risky.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Social media and digital online concept, woman using smartphone
Investing Articles

Apple stock: Buffett is long, Burry is short. What should I do?

Our author thinks about whether following Warren Buffet into Apple stock might be a good addition to his portfolio –…

Read more »

Close-up of British bank notes
Investing Articles

5 ‘no-brainer’ dividend shares to buy today

Is there an easy way to narrow down the list of FTSE 100 dividend shares? I try one approach, with…

Read more »

Close-up of British bank notes
Investing Articles

£5,000 to invest? 2 dividend-paying penny stocks I’d hold to 2030

I think these high-yielding penny stocks could help cushion the impact of high inflation on my returns. Here's why I'd…

Read more »

Renewable energies concept collage
Investing Articles

2 green stocks that I think are no-brainer buys for the future

Jon Smith explains two of his favourite green stocks at the moment, one for growth and the other for income…

Read more »

An airplane on a runway
Investing Articles

The Rolls-Royce Share price may be set for take-off!

After an upbeat Civil Aerospace Investor Day, here's why I think the Rolls-Royce share price could be set for take-off…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

2 beaten-down growth stocks to buy as inflation rises

Despite inflationary pressures and recession concerns, I am looking at some top growth stocks to solidify my portfolio over the…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Is the IAG share price too good to miss at current levels?

Jabran Khan delves deeper into the current state of play with the IAG share price and decides if now is…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

5 of the highest-paying income stocks compared! Which one is best for my portfolio?

Income stocks are certainly in vogue right now amid sky-high inflation. But which of these big dividend payers is the…

Read more »