Kier is an infrastructure maintenance provider, regional builder, property developer and housebuilder that generates most of its revenue in the UK.

Kier has been through a significant period of transformation over the past four years, involving two major acquisitions and a portfolio simplification process. The company has now achieved an attractive balance between cash-consumptive / asset-intensive housebuilding and property development activities and cash-generative / asset-light construction and maintenance activities. It mainly serves clients from the public sector that operate in industries such as education, healthcare, transport, residential property and infrastructure.

We introduced the company in the Woodford Income Focus Fund’s portfolio in March 2018 and, a few months later, in August, Kier also became part of the Woodford Equity Income Fund.

Investment case summary

We were initially attracted to Kier because of its market leading positions in growing sectors, multiple levers to drive increased profitability and cash generation, and by its compelling valuation. The company generates over 90% of its revenues within the UK and has the capability to invest in, build and maintain any of the country’s principal physical assets – buildings, infrastructure and housing.

Its largest divisions, based on revenues, are the construction business (which places Kier in a strong position to address the UK’s needs for more schools, hospitals and transport infrastructure) and its services division (through which Kier is a market leader in highways, utility and telecoms maintenance). Meanwhile, its property arm develops non-speculative projects nationwide, such as offices and retail and leisure spaces, mostly outside of London. Also, its residential property business operates a hybrid model of building private houses as well as mixed tenure properties.

Kier has spent the last several years investing in its operations and deploying capital in its asset-intensive divisions. The business is now well placed to harvest increased profitability and cash as capital expenditure reduces, pension contributions moderate, cash non-underlying charges do not re-occur, a cost saving programme delivers incremental cashflow and the required capital investment in asset-intensive divisions reduces significantly.

Ask a question about our investment in Kier

Fund exposure
Income Focus Fund 2.88%
Equity Income Fund 1.09%

As at 28 February 2019

Geography United Kingdom
Industry Industrials
Themes UK domestic exposure

Source: Woodford

Share Price

Market Quotes by TradingView


Management change and trading update

Kier has this morning announced that Haydn Mursell is stepping down from his role as CEO with immediate effect. Chairman, Phil Cox, is stepping in as Executive Chairman during the transition and a search for an external candidate for CEO starts immediately.

Meanwhile, the business has confirmed it is on track to meet expectations for the current financial year and that it is still winning contracts. Importantly, the recent rights issue was not associated with a profit warning or any deterioration in its operational performance, and today’s update clearly demonstrates that this remains the case.

This is a good update from Kier. The CEO moving on is a positive step for the rehabilitation of this business. Trading is stable and the balance sheet is improving as expected.The dilution associated with the rights issue has undoubtedly reduced the per-share intrinsic value of this business. Nevertheless, conservative valuation analysis, on both a group and sum-of-the-parts basis, continues to reveal material medium-term upside. We will remain highly engaged with this business on all key strategic points.

Alex Correia
22 January 2019

Rights issue

Kier has today announced that it is raising a net £250m through a rights issue to proactively reduce debt on its balance sheet. This is in response to deteriorating sentiment with respect to debt in Kier’s sector and the resultant desire of commercial banks to reduce their exposure to the construction industry. Importantly, Kier’s financial position and operational performance have not changed and trading is in line with expectations.

Following this fundraising, Kier will have a stronger balance sheet which management believes will improve the company’s competitive positioning, putting it in a better position to win new business, given increased focus on balance sheet strength by key customers.

Kier is a relatively new position in the funds and, with current trading in line with expectations and in anticipation of a stronger balance sheet and growing earnings, the attractive long-term investment thesis that we have built around it remains in place.

Alex Correia
30 November 2018

Good set of results and positive management meeting

A few days ago, Kier reported a good set of full year results, which were very much in line with management expectations. In numbers, revenues were up 5%, operating profits increased by 10%, earnings per share grew by 9% and its dividend was also up 2%. It also announced a new cost savings target of at least £20m in 2019 – this should further boost the company’s earnings going forward. Additionally, Kier has committed to deleveraging, including a target of a year end net cash position by 2021.

Also, we had a reassuring meeting with management today, which plans to substantially enhance the company’s cash generative capabilities. Additionally, its earnings from highway maintenance can grow significantly from here as its main customer (Highways England) is planning to double its spending on such services. Overall, the company’s outlook remains very encouraging as there is clear evidence that there is strong demand for Kier’s capabilities. We remain therefore confident in the investment case in this undervalued but very attractive business.

Alex Correia
26 September 2018

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

© 2019 Woodford Investment Management Ltd.
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