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I think the Kier share price recovery could be on, as it soars 25%

Looking for a bargain buy among the stock market’s down and outs? Well, it’s increasingly looking like troubled Kier Group (LSE: KIE) really could be on the road to recovery.

Kier was famously backed by Neil Woodford, and many might have come to see that as the kiss of death. But investors are being drawn back, and the Kier price has climbed by more than 60% since mid-January.

Nothing is for certain, mind, as shares in the construction company is still down nearly 90% over the past two years. But upbeat first-half figures gave Kier a 25% boost Thursday morning.

Attributing it to “decisive management actions,” the firm reported a pre-exceptional operating profit of £46.7m. That does translate to a statutory operating loss of £24m, but it’s a reduction from a loss of £32.5m in the same period a year previously.

Revenue fell by 9%, and that was put down to the continuing challenging conditions. But Kier did report cost savings in the period of £23m, and I’m pleased by that.

Debt

Debt is my key concern, though, as it can easily kill a struggling company. The collapse of Carillion is surely still fresh in investors’ memory, and it’s certainly in mine. But private investors can often have very short memories. Failures can soon be forgotten when it looks like the next opportunity for a quick profit is on the doorstep. I see that as an unfortunate trait, and once again I’m drawn to Warren Buffett’s famous quote urging investors to focus on avoiding possible losses rather than only chasing profits.

Net debt at 31 December of £242.5m was said to be in line with expectations, but I think we need to look deeper than that. For one thing, that’s a 34% rise over the £180.5m figure reported a year prior.

A year-end snapshot really doesn’t show the whole picture anyway. And Kier told us that average month-end net debt came in much higher at £395m. That’s down, but for my money, it’s still a worrying figure.

Still, looking to the positives, new chief executive Andrew Davies said: “I am pleased to report that many of the actions we outlined at the beginning of the year have been executed successfully. In particular, the decisive cost actions we have taken are now benefiting the group and have more than compensated for the challenging market conditions we experienced in the period.”

The planned sale of Kier Living is progressing too, and that should help strengthen the balance sheet by the end of the year.

Big profit?

At this stage, I do think Kier Group could be one for growth investors seeking decent capital gains. The shares are very lowly valued, and if Kier’s new management under the leadership of Davies can continue what they look to have started, I can see business improving significantly.

That, in turn, could well result in an upwards re-rating of the share price. I’d go so far as to suggest a doubling, or even trebling, of the price could be on the cards over the next couple of years.

The risk is still high though, and the chance of collapse has not receded far enough for me to buy. But I have high hopes for those braver than me.

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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.