I last wrote about integrated services and construction company Kier Group on 7 June, arguing that although earnings are volatile and unpredictable, “ the share price is likely to move in cycles and an up-move could follow a down-move.”
Back then, the stock stood at 153p and I was “poised to pounce to try to catch the next up-leg, which is likely to start when the news flow is at its worst.” I haven’t yet pounced, which is lucky for me because today the shares stand close to just 116p. But in fairness, they were as low as about 60p by the end of July, and if I’d done my pouncing then I’d be sitting on a nice gain by now.
In full turnaround mode
But timing the market is very hard to do, especially when a share price has been falling for so long. Meanwhile, the news flow from Kier since June reveals to us that the firm has switched to full-on turnaround mode, and is doing everything it can to pull up its metaphorical socks.
As soon as he started in post in April, incoming chief executive Andrew Davies got to work leading a full strategic review aimed at simplifying operations. On 17 June, the firm revealed its conclusions. Insufficient attention had previously been paid to cash generation while the company had engaged in a protracted period of acquisition activity. Debts are too high as a consequence of that lapse.
There would now be a focus on Regional Building, Infrastructure, Utilities and Highways. Non-core activities would be sold or discontinued, such as Kier Living, Property, Facilities Management and Environmental Services. 1,200 jobs would go to reduce annual costs by around £55m.
On the day of the full-year results report on 19 September, Simon Kesterton started as the new chief financial officer. With new top management, Kier can wipe the slate clean and ‘start again’. I think refreshing the directors from time to time can be a good thing in many companies because the new executives often arrive with plenty of energy, fresh eyes and ideas, and a determination to make their mark with positive business outcomes.
High risk/potentially high reward investing
We received a nice update in the full-year report, which revealed the firm has a “strong” order book. The sale of Kier Living is “progressing well,” and the firm is “exploring options” to release capital from the Property business. Andrew Davies assured us that “the re-shaping” of the company will reduce debt and “restore Kier to robust financial health.”
It’s hardly worth looking at the trading figures in the report, I reckon, because an investment in Kier is all about what the turnaround and restructuring can produce in the future. The forward-looking earnings multiple sits at about 2.4 for the current trading year to June 2020 and you can double that if considering the enterprise value, which includes the debt load.
That looks cheap, but the business is in a state of flux and City analysts’ estimates could be wrong. Nevertheless, despite missing what appears to have been the bottom, I’m tempted to take a leap of faith and pick up a few of the firm’s shares now to speculate on the company’s strategy for operational recovery. However, this is high risk/potentially high reward ‘investing’ I’m talking about, and not for those of a nervous disposition!