The Motley Fool

The Kier share price rockets 37%! Is it the turnaround of the decade?

Image source: Getty Images

When you Google the Kier (LSE:KIE) share price, the most popular related searches should give you some pause for thought.

Why is Kier share price falling?”, “Is Kier going bust?”, “Should I sell my Kier shares?”

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

If Kier can rebuild its share price, it would be the turnaround of the decade. That inevitably attracts bargain-hunters.

The shares traded up to 37% higher on the release of 2019 second-half results, but the following day, they sank by 15%.

Turnaround bright eyes

The Kier share price is at historic 20-year lows. Shareholders stand to make dramatic long-term gains if the construction giant can complete its joint venture work on grand UK rail infrastructure projects like Crossrail and High Speed 2 (HS2).

As I’ve written elsewhere, big government contracts make for stable and lucrative long-term revenue. Kier is a key supplier to the UK government. The dramatic 2018 collapse of Carillion was a huge embarrassment and it is perhaps unlikely it would let the same happen to Kier.

February saw Boris Johnson’s cabinet throw its weight behind HS2. Kier has two HS2 civil engineering contracts worth £1.4bn, in a joint venture with France’s Eiffage. Carillion was Kier’s partner in the projects before it went bust.

City analysts said Kier would get only a small short-term boost if the cross-country rail upgrade got the green light. But the addition of billion pound-revenue streams over the next five years will be a huge benefit to the London construction group.

Those results

So what is the company’s current financial position? Half-year results out on 5 March saw improved operating profits but higher net debt. A wide-ranging cost-saving plan includes cutting 420 jobs, and CEO Andrew Davies said would lop £65m off its bills by 30 June 2021.

The sale of its ill-fated entry into the homebuying market, Kier Living, is progressing, Davies said. However bosses wrote down the value of the business by nearly £60m over the half-year.

However encouraging the results, Kier still made a £41m loss. Revenue also dipped 9% from £1.98bn over last year’s first half, compared to £1.82bn this time around.

Brokers Peel Hunt and Liberum Capital are still rating Kier a buy, but I think that’s a mistake. Investing in Kier is still a very high-risk strategy, in my view.

Pipe dream

He who does not learn from history is doomed to repeat it.

A desperately low P/E ratio of 2.2 times earnings for the Kier share price doesn’t say ‘bargain’ to me. It says beware! Ratios this low indicate the company does not have the confidence of the market.

Warren Buffett’s advice on turnaround stocks may be 40 years old, but it is still as true as the day it appeared. “Both our operating and investment experience cause us to conclude that ‘turnarounds’ seldom turn,” the billionaire investor wrote in a 1979 letter to Berkshire Hathaway shareholders.

The same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price.”

With the FTSE 100 crumbling on coronavirus fears, there are plenty of good businesses at fair prices for investors to consider. I don’t think Kier is one of them.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Tom Rodgers has no position in 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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.