Why Kier could be on the cusp of operational recovery and what I’d do now

Is it time to speculate on Kier Group’s turnaround strategy?

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

I last wrote about integrated services and construction company Kier Group  on 7 June, arguing that although earnings are volatile and unpredictable, “ the share price is likely to move in cycles and an up-move could follow a down-move.”

Back then, the stock stood at 153p and I was “poised to pounce to try to catch the next up-leg, which is likely to start when the news flow is at its worst.” I haven’t yet pounced, which is lucky for me because today the shares stand close to just 116p. But in fairness, they were as low as about 60p by the end of July, and if I’d done my pouncing then I’d be sitting on a nice gain by now.

In full turnaround mode

But timing the market is very hard to do, especially when a share price has been falling for so long. Meanwhile, the news flow from Kier since June reveals to us that the firm has switched to full-on turnaround mode, and is doing everything it can to pull up its metaphorical socks.

As soon as he started in post in April, incoming chief executive Andrew Davies got to work leading a full strategic review aimed at simplifying operations. On 17 June, the firm revealed its conclusions. Insufficient attention had previously been paid to cash generation while the company had engaged in a protracted period of acquisition activity. Debts are too high as a consequence of that lapse.

There would now be a focus on Regional Building, Infrastructure, Utilities and Highways. Non-core activities would be sold or discontinued, such as Kier Living, Property, Facilities Management and Environmental Services. 1,200 jobs would go to reduce annual costs by around £55m.

On the day of the full-year results report on 19 September, Simon Kesterton started as the new chief financial officer. With new top management, Kier can wipe the slate clean and ‘start again’. I think refreshing the directors from time to time can be a good thing in many companies because the new executives often arrive with plenty of energy, fresh eyes and ideas, and a determination to make their mark with positive business outcomes.

High risk/potentially high reward investing

We received a nice update in the full-year report, which revealed the firm has a “strong” order book. The sale of Kier Living is “progressing well,” and the firm is “exploring options” to release capital from the Property business.  Andrew Davies assured us that “the re-shaping” of the company will reduce debt and “restore Kier to robust financial health.”

It’s hardly worth looking at the trading figures in the report, I reckon, because an investment in Kier is all about what the turnaround and restructuring can produce in the future. The forward-looking earnings multiple sits at about 2.4 for the current trading year to June 2020 and you can double that if considering the enterprise value, which includes the debt load.

That looks cheap, but the business is in a state of flux and City analysts’ estimates could be wrong. Nevertheless, despite missing what appears to have been the bottom, I’m tempted to take a leap of faith and pick up a few of the firm’s shares now to speculate on the company’s strategy for operational recovery. However, this is high risk/potentially high reward ‘investing’ I’m talking about, and not for those of a nervous disposition!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any share 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

Close-up of a woman holding modern polymer ten, twenty and fifty pound notes.
Growth Shares

This FTSE 250 stock has beaten the index by around 10x over the last year

Jon Smith rates a FTSE 250 stock that has smashed the broader index performance and could keep going based on…

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

B&M shares are at record lows! Is now the time to consider buying?

The retailer, demoted from the FTSE 100 to the FTSE 250 last year, continues to struggle. But are B&M shares…

Read more »

Investing For Beginners

2 reasons why the stock market could hit 10,000 points by December

Jon Smith explains how the makeup of the UK stock market and the current valuation could support a move towards…

Read more »

Queen Street, one of Cardiff's main shopping streets, busy with Saturday shoppers.
Investing Articles

Why this FTSE 100 rocket is this investment trust’s number 1 holding

A UK investment trust is certainly going against the grain by having this FTSE 100 share as a high-conviction holding…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

These 2 FTSE growth stocks jumped 8% and 4.5% today!

Ben McPoland takes a closer look at a pair of FTSE stocks that are performing really well recently. Why are…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

This under‑the‑radar FTSE 100 growth stock is also a secret dividend superstar!

Harvey Jones belatedly wakes up to a brilliant FTSE 100 growth stock that has an equally remarkable track record of…

Read more »

Business manager working at a pub doing the accountancy and some paperwork using a laptop computer
Investing Articles

Barratt Redrow share price plunges 9% on profits hit – time to consider buying?

Harvey Jones says FTSE 100 housebuilders continue to suffer with the Barratt Redrow share price slumping on a profit warning.…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Growth Shares

Why the next month could make or break the Lloyds share price

Jon Smith outlines two key events in coming weeks that could influence the Lloyds share price, leading him to make…

Read more »