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Kier Shares Crash on Profit Warning

Construction group's shares drop 40% as profit forecasts are revised down and cost-cutting plans announced

James Gard 3 June, 2019 | 11:37AM

Warning sign

Shares in FTSE 250 construction firm Kier (KIE) have fallen 40% after a profit warning.

Kier said that profits for the full financial year ending June 30 are likely to be £25 million lower than the forecast of £129 million and that its roads, utilities and housing maintenance businesses remain under pressure. Last year the firm recorded profits of £88 million. 

A long-term cost-cutting initiative “Future Proofing Kier” is also expected to add £15 million to the company’s costs for the year, in addition to the £25 million lower profits.

Kier’s share price started 2018 above £10 are now trading at 167p, a fall on 40% on Friday’s close.

The firm recently featured on Morningstar.co.uk’s list of the biggest dividend payers in the FTSE 350 and at the end of last year, our analysis of the biggest share price collapses of the year. The collapse of rival Carillion last year led to fears of contagion in the sector.

According to the Financial Conduct Authority, Kier is one of the most shorted stocks in the FTSE 350, meaning that traders are betting the shares will fall further. Fund manager BlackRock is shorting more than 1% of Kier’s stock, according to data to the end of May. 

Kier embarked on a fundraising exercise at the end of 2018 with a rights issue, but the offer was only taken up by 38% of investors. At the time, Morningstar columnist Rodney Hobson said that existing shareholders should “grit their teeth” and subscribe to the rights issue to get the firm’s debt down but advised against new investors taking the plunge.

Among rated funds, Kier makes up nearly 2.5% of Neutral-rated Woodford Income Focus and nearly 1% of Woodford Equity Income, which was recently downgraded by Morningstar analysts. The Bronze-rated M&G Recovery fund has 0.8% of its assets invested in Kier.

In terms of closed-end funds, Kier accounts for 1.5% of five-star rated Seneca Global Income and Growth Trust (SIGT), its third biggest equity holding, according to Morningstar data.

Three City brokers reacted to Kier’s profit warning this morning: Numis, which has a price target of 169p, placed the shares under review. Liberum dropped its price target to 320p but maintained its “buy” recommendation, while Peel Hunt reiterated its “buy” advice with a price target of 169p.

In April, Kier launched an internal review into spending, cash generation and how to reduce debt and it will publish the findings of this review in July. Annual results are due in September.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
LF Woodford Equity Income C Sterling Acc82.59 GBP-0.40
M&G Recovery GBP I Acc330.81 GBP-0.17
Seneca Global Income & Growth Trust Ord173.50 GBP0.00

About Author

James Gard  is content editor for Morningstar.co.uk

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