You only need to glance at the Kier Group (LSE: KIE) share price to see the scale of the problems it still faces. The construction, services and property group has been on a steady downward decline for the last three years, losing more than 90% of its value in that time. Its performance chart hurts my eyes.
Kier we go
At the time of writing, the Kier share price trades at 112p, a fraction of its year-high of 1,129p. And that’s after factoring in the massive 45% rise in its value over the last month. Is this the start of the recovery or a supersized dead cat bounce?
New CEO Andrew Davies is working hard to save Kier’s skin, announcing in June 1,200 job losses (out of 19,000) in a bid to cut its debt pile and avoid the fate of competitors Carillion and Interserve.
He also plans to sell its homebuilding business Kier Living, although this may raise less than originally hoped, while shutting or selling its recycling and rubbish-processing operations. The new slimmed down business will focus on four key groups – infrastructure, regional construction, utilities and road maintenance.
All this and HS2
The recent bounce is tempting, but don’t fool yourselves, putting this business right is set to be a slow process. It could be years before we see any meaningful recovery, especially with UK GDP shrinking and the global economy set for a turbulent spell. I almost don’t even have to mention the Brexit word here.
And two years ago, Kier Group was awarded £1.4bn of HS2 contracts, but this could be threatened as Prime Minister Boris Johnson places the UK’s single biggest transport investment project under review.
Kier’s market cap has shrunk to just £182m, against debts of £167m as of 30 June. At the start of this month, it said its debt situation has improved slightly, and you can date its recent share price surge to that relatively upbeat post-close update, even though it announced that turnover would drop by £100m in 2019.
Living, going, gone
Management said it has also received received “significant interest” in Kier Living and has commenced the sale process. If it secures a decent price for that, the share price could get a further lift.
Kier is looking to deliver annual cost savings of around £55m from 2021, and City analysts see a potential pick-up in the financial year to 30 June 2020, when they forecast earnings per share will rise 13% (after this year’s 49% drop). Don’t expect any dividends though, they’ve been cancelled this year and next.
Very risky buy
Kier stock now trades at just 1.9 times forecast earnings, a tiny fraction of the 15 times earnings generally seen as offering fair value. You can see why investors have piled in on the first sniff of positive news, although in my experience, sudden surges upwards can quickly reverse.
For now, Kier looks as if it can survive, and that is in itself a victory. Brave investors may want to monitor this stock and look for a buying opportunity. If you are tempted, be prepared for a bumpy ride.
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Harvey Jones has no position in any of the 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.