Most UK stocks have slumped since the start of 2020, due to the Covid-19-related lockdown. Some more defensive shares have kept going because they provide essential good and services. And then there’s Kier Group (LSE: KIE). The Kier share price today is largely unchanged since the beginning of the year.
Kier share price collapse
That doesn’t tell the whole story. Kier shares were actually starting to recover in the early part of the year, and they’d gained 50% by mid-February. And then the pandemic send that recovery back into tailspin.
What matters most is the long-term picture, and for Kier, that’s been truly horrible. Over the past five years, the Kier share price has plummeted 93%. But is it simply too cheap to ignore now?
The most recent forecasts put Kier shares on a prospective P/E of only around three, and that’s a super-low valuation. That alone doesn’t make it a buy though. The problem is, that kind of valuation shouts out that the market thinks the company is going bust. And, for a long time, I’d have put the odds around 50/50 at best.
Not going bust
But when a stock is priced to go bust and the company survives, the shares can rebound very strongly. With Kier, my opinion is swinging strongly towards survival and prosperity. So I find the Kier share price very tempting.
The key thing is that Kier’s debt is increasingly looking manageable. Interim results released in March put average month-end net debt at £395m. That’s high compared to an operating profit of £46.7m, but it is coming down.
There seems to be plenty of work coming in too. Chief executive Andrew Davies said: “The group has been awarded places on several major frameworks since 1 January 2020, following the awards of c.£1.7bn in the period, and the government has recently confirmed that the HS2 project will proceed.“
Kier share price spike
That optimistic outlook was presumably behind the spike in the Kier share price early in the year, before the coronavirus threat knocked it back down again. But I really don’t see a big hit to Kier’s work from the lockdown.
The greater part of that work is on government projects and for government-related bodies. Much of it is deemed essential services too. And the firm has been given key worker status for a number of its employees who carry out that work. Even by the end of March, Kier told us that approximately 80% of its sites and workplaces continued to operate. With lockdown easing, that will surely increase.
Two years ahead
The strength of Kier’s order book should, I think, help take some pressure off its debt burden. At 30 March, Kier had total facilities of approximately £910m, so there’s still sizeable headroom. Some £700m of that is up for renewal, but not until 2022. By that time, we’ll have seen two more years of cost savings. And, by the looks of things, two more years of big contract work.
So yes, I think the Kier share price is too low now, and I rate Kier a recovery buy.
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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.