The Kier Group (LSE: KIE) share price was there with the biggest fallers Monday, dropping 9% in early trading, as the troubled infrastructure developer’s struggle with debt continued to scare away investors.
Since the Telegraph reported attempts by lenders to offload their loans at knockdown prices, the modest share price recovery that started in July has come off the rails a bit. From a peak (if you can call it that) in September, the shares have given up a third of their value — though to put that into perspective, we’re still looking at a 12-month fall of 99%.
Knockdown debt
According to the claims, HSBC and other lenders have been hawking their debt to hedge funds for as little as 70p per pound, and levels like that heighten bearish fears that Kier Group might go the way of Carillion and its debt turn out to be worthless. And given that lenders come ahead of shareholders in any insolvency proceedings, it’s not really surprising if the City is running away from Kier shares as a result.
The trigger for the latest share price downturn Monday appeared to be a downgrade by broker Jeffries, which has dropped its price target to 100p. That was below Friday’s closing price, and the shares dipped as low as 95.2p in response, though as I write, the price has steadied a little at 99p for a 5.4% fall.
Slow sell-off
Eyes are focused on Kier’s attempts to sell off non-core businesses, and Kier Living in particular seems to be attracting investors’ attention as there’s been no sign yet of a buyer for it even though at full-year results time the firm told us its sale was “progressing well.“
In general, Kier’s attempts at a sell-off and a restructuring of its remaining business seems to be proceeding at a snail’s pace, and it’s not as if the company has all the time in the world at its disposal.
News that the UK’s growth has slowed to its weakest pace in a decade doesn’t help, as Kier is so dependent on government infrastructure work — and any squeeze there won’t help. The coming two years could well be make-or-break for Kier, especially as analysts are predicting significant remaining debt, even after the firm’s currently planned asset sales, so pressure will be increasing to cut costs.
Bottom line
But what do the figures actually look like? A reported £245m pre-tax loss for the year to 30 June left Kier having to report an average month-end net debt of £422m (up from £375m a year previously). That’s well above the company’s current market cap of £160m, and multiple times 2020’s forecast pre-tax profit of around £98m — and I don’t put much faith in the forecast myself, fearing another horrible year in the making.
Even if current forecasts come good, the shares are still on a forward P/E of only 2.4, and that’s priced for more bad news. If Kier’s restructuring comes good over the next couple of years, we could see a share price recovery. But I see a high chance of a wipeout, and that keeps me away, especially when there are so many top alternatives out there.