In FY2019, Kier’s fell 38.9% y-o-y but remained positive. The cash flow, both operating and free, however, turned negative. Kier’s share price too, over the period of 12 months and 15 months have dropped 84.4% and 92.3% respectively. Chart 1 from Bloomberg shows Kier’s share price against its one-year default probability. The default probability includes metrics such as leverage ratios, interest coverage ratio, and quality of assets; which is then compared against industry peers to arrive at a default risk probability. The chart shows a very telling relationship between the share price and default probability – as the default probability increases, the share price falls. We think this is a good reason to believe that in order for Kier to turnaround, it must fix its default probability, which comprises of the previously mentioned factors.
With Brexit almost done and dusted, this UK construction company could be a turnaround story but is not for the faint-hearted
SINGAPORE (Jan 23): London Stock Exchange-listed Kier Group is a construction company that works on projects of all sizes, complexities and sectors spanning the UK. Over the past two years, Kier has been riddled with debt and other financial concerns caused by Brexit. No surprise then that business, earnings, and of course the share price suffered drastically over the past two years. Following the Brexit referendum, article 50 was invoked in March 2017, giving the UK two years to Brexit. As of Jan 17, the UK still has not Brexited, but light is at the end of the tunnel and a clear Brexit timetable should support sentiment around Kier Group.
