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Does the Kier share price make it worth buying?

Let’s be honest, the past 12 months have been pretty terrible for the share price of UK construction firm Kier Group (LSE: KIE). This time in 2018, its shares were in the £10 region, but following an emergency rights issue, as well as a raft of increasingly bad news, the stock today stands at just over £1 per share. So then, is now the time to buy?

Losses in a bad year

The latest results for Kier are not encouraging. In September the company reported a £245m loss, down from a profit of £106m the year before, taking on a £56m cost for restructuring (which is far from finished) and a £172m cost related to selling operations or getting divisions ready for sale.

Unfortunately for Kier, appetite for its shares is still weak — investors still sceptical having previously suffered an emergency cash call, an accounting error and a surprise profit warning.

The rights issue did to some extent achieve what it intended however – at the end of the reporting period, net debt was down 10% to £167m compared to the previous year, and far from the £624m level which caused the problems in the first place.

What I do find slightly worrying is something my fellow Fool Rupert Hargreaves notes, suggesting the company has a lot of what he considers “off balance sheet debt” which may not be accounted for in these headline numbers.

Could Kier Group go bust?

Understandably, there have been a lot of comparisons with failed constructor Carillion, which also saw large debt and active short selling leading to its eventual downfall.

Though Kier’s restructuring efforts are expected to save about £55m a year from 2021, they will cost £56m over the next few years to implement – at a time when the company could do with the savings, it is in fact spending. The restructuring will help matters, but only if the firm lasts long enough to actually benefit.

Indeed I recently did a credit strength test on the company known as the Altman Z-Score that did not look promising. Effectively considering a few key solvency numbers to assess its risk of going bankrupt, historically a number below 1.8 has put firms in a dangerous area. Kier group’s number was 1.77.

Any positives?

While it is hard to assert there are any true positives at the moment, there may at least be some ‘less negatives’. The past few months have seen its share price bounce back from record lows, up about 80% from the bottom in July, though this is perhaps more a sign of consolidation at these levels rather than improved prospects.

At the moment, Brexit overshadows the company’s future, and any conclusion that finally gets drawn on that saga will mean for better or worse, the company will know where it stands with both its employees and supply chain.

Kier’s share price may be far cheaper than it once was, but personally I don’t feel like the turnaround is on the cards quite yet. An optimistic view may indeed say that it will be able to pull itself out if its current woes in the future, but before it is able to do that (if indeed it ever is), I suspect there are more share prices losses to come.

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Karl 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.