Construction firm has plans that could build up your profits

WHEN the financial markets look uncertain, it pays to pick businesses with focus and a plan. Construction and infrastructure services group Kier, which produced its interim results earlier this month, is attempting to show it has both.

The company has gone through a major restructuring, which saw it shed jobs, suspend its dividend, and lose some parts of its business including housebuilding. Kier is now focused on two sectors: infrastructure and commodities. It has projects as diverse as repairing Scottish Water’s sewer network and the restoration of Oldham Town Hall.

Chief executive Andrew Davies, who oversaw the restructure, says the company’s increased order book provides investors with visibility. It is up 29 per cent at £10.1billion, with 96 per cent of Kier’s expected full-year revenue already secured. Davies adds that 60 per cent of the order book is under contracts where the costs are reimbursable or ‘target cost’ contracts, which means that the company is less exposed to rising inflation in raw materials and wage costs.

Davies is keen to reassure investors. His statement at results time was packed with phrases such as ‘bidding discipline’ and ‘risk management now embedded in the business’. Should investors be soothed by his words?

Those with longer memories will remember why the company needed restructuring in the first place. When the current management took over, Kier had admitted to ‘accounting errors’ and was in serious debt.

Davies described the business as ‘an absolute mess’ in one newspaper interview and revealed that it had been close to collapse before being saved by contracts related to HS2.

Analysts believe that the restructuring has done much to strengthen Kier’s position. Joe Brent, at Liberum, points out that this is the third set of results where the business has met or exceeded the firm’s margin target.

Most are forecasting a dividend from the group in 2024. Risks include delays to procurement and to secured projects such as HS2. The shares are

down 26 per cent over the past 12 months, though up nearly 9 per cent since January.

Traded on: Main market Ticker: KIE Contact: kier.co.uk or 01767 355000