Can the Kier share price double your money?

The Kier share price has crashed by 90%, but could it now be the bargain of the century?

| 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.

When I look at a recovery prospect, I steer clear until I see evidence that a firm’s solvency is assured and its return to health has actually started happening. I’m now also adding a requirement that I can see the potential for at least a doubling of the share price.

This approach has been strengthened by a string of failures, the most recent being the collapse of Thomas Cook, whose survival had looked almost assured just a week before it went bust.

Big faller

I’m keeping a close eye on Kier Group (LSE: KIE), which might be making slow progress in its struggle to return to health. Its 10% net debt reduction for the year ended 30 June might look encouraging, down from £186m at 30 June 2018 to £167m a year later, but it’s nowhere near the progress the company had hoped to make by this stage.

There’s no hiding the fact that the results were painful overall, as chief executive Andrew Davies said, “Kier experienced a difficult year, resulting in a disappointing financial performance.” But he did stress that, with a new management team in place, “The re-shaping of the Group is designed to reduce its overall indebtedness during FY 2020 and to restore Kier to robust financial health.

The plan for achieving long-term balance sheet health involves the sale of the Kier Living division and withdrawal from the Environmental Services and Facilities Management businesses, a reduction in capital investment in Property to £100m by the same point next year (from £184m at 30 June this year), and job losses of 1,200 in the next financial year (following on from 650 in FY 2019).

Share price

After the collapse of Carillion, short sellers started to attack the rest of the sector, including Kier. This was far from the only cause, but it added to the downward pressure on Kier’s share price, and we’re now looking at a fall of around 90% over the past 12 months. As well as thinking that the whole sector was overstretched, some were even of the opinion that Kier’s cash flow accounting had been a little on the optimistic side.

On current forecasts, Kier shares are on a forward price-to-earnings (P/E) of under 3. That’s pretty much unheard of, certainly for a company that’s it’s not headed for the wall, and it clearly represents a market consensus that Kier shares are not to be touched with a bargepole.

Even if we doubled the effective P/E to account for the firm’s debt being very close to its market cap, and to try to get some valuation for the company alone, we’d still be looking at an effective multiple of less than 6.

Too many questions

Right now, there are many questions concerning Kier’s ability to turn its balance sheet and cash flow positions around, and some of the key ones are presented by my Motley Fool colleague G A Chester – I’d urge you to check them out before you think of investing.

It’s possible that Kier could become the turnaround story of the century, that there’s way more than a share price doubling on the cards, and that my recovery rules guarantee I’ll miss out. But avoiding the real possibility of a total wipeout is more important to me, and I’m definitely not buying.

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.

Alan Oscroft 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.

More on Investing Articles

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 »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »