Investor confidence continues to come unstuck on Thursday as concerns over runaway inflation rise. The FTSE 100 and FTSE 250 are both heavily in the red as market makers contemplate fresh interest rate hikes. However, the Kier Group (LSE: KIE) share price has had no problem gaining traction after launching a fresh share placing.
The construction specialist has soared back through the £1 per share marker for the first time since mid-February 2020. At 112p per share, the Kier price was last 9% higher on the day.
Share placing
Kier has risen after issuing a statement concerning a planned capital raise that it had previously touted in late April. In its full-year financials, it announced plans to raise between £190m and £240m via a share placing.
Today Kier said that it plans to raise gross proceeds of £241m via a placing and open offer. It said that these funds would be used “to immediately reduce the group’s net debt and facilitate prudent investment in the business to allow the group to drive sustainable, profitable organic growth”. The construction firm ended 2020 with £353.5m worth of net debt on its books. This was up from £242.5m a year earlier.
Kier said that its lenders have agreed to extend its revolving credit facility to January 2025 following a successful equity raise, as per previous guidance. The business said that this will provide it with extra balance sheet strength “as it pursues its target of a net cash position within two to three years”.
Kier’s “final milestone”
Commenting on the planned share placing, Kier chief executive Andrew Davies said the capital raise “represents the final milestone in the group’s strategy to simplify the group; to improve cash generation; and to strengthen our balance sheet”.
Kier said it had “substantially delivered on the many self-help actions identified by management through the 2019 strategic review process”. As a consequence it considered now to be the time to complete balance sheet recapitalisation through a share placing.
The company said it now has “the appropriate cost base and ‘Performance Excellence’ culture embedded throughout the group to ensure contracts are won and executed on terms and values appropriate to their risk”. The firm is targeting at least £115m of annualised cost savings (compared to 2018 levels) by the end of 2021.
Kier said its medium-term plans include generating revenues of $4bn to $4.5bn and boasting an adjusted operating profit margin of 3.5%. It’s also targeting cash conversion of operating profit of 90% and a sustainable dividend policy “with dividend cover of around three times earnings”.
In the meantime, City analysts think Kier’s annual earnings will rise 104% in 2021. An additional 51% rise is forecast for 2022 too. These predictions mean the business trades on a forward price-to-earnings (P/E) ratio of 3.5 times at current prices.
