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.

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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »