Small cap stocks such as Kier Group (KIE) are known for their monumental market moves and in the current Brexit turmoil, things are no different. With a market cap of £540m and price having recently rejected the 16-year price floor of 325p, is this time to buy?
Kier Group plc operate globally in four divisions: Property, Residential, Construction, and Services. The company offer such a wide array of services that it’s understandable how they’ve come to establish such a strong name for themselves.
With the UK population continuing to steadily grow and demand for housing rising in alignment, it falls to construction companies, such as Kier, to step in and facilitate what the population desire. In 2018 they signed a deal with Homes England for the production of 5,400 new homes over the next 10 years yet we have still seen a decline in the market value of the company. Along with this, Kier Group have worked on six major projects within the overall £15bn Crossrail project which goes to show that they can complete tasks both large and small scale. They’re a company with a global footprint and are certainly known to be one of the top 10 construction companies within the UK.
Whilst a falling stock price can send some investors running, others see a decline as a fantastic opportunity to capitalise by entering the market at the lows (assuming we really have hit the price floor!). Until some certainty surrounding Brexit arises, I believe the construction sector can continue to be a safe haven that people look to invest in to.
The current share price sits at 335p yet has an intrinsic value of 778p based on future cash flows. That’s a potential 132% gain should this price target be met. With £10bn scheduled in the pipeline for diversified projects such as Crossrail, a prison project in Oakwood and a new educational building named after David Attenborough all presented in the last executive presentation, it’s hard to see how the stock won’t rise from the current price point.
In recent months Kier Group have restructured their debt in order to help accelerate its net debt reduction plans and strengthen the infrastructure services balance sheet. The initial request for £264mln clearly didn’t go down well with the share price falling 55%. Kier Group received 37.66% acceptance for its rights issue, however, the fundraising was underwritten by Numis Securities, Peel Hunt, Citigroup Global Markets, HSBC and Banco Santander. As it stands, in April, we have two strong buy ratings from Liberum Capital and Peel Hunt but no target price listed. The most recent target was stated by Liberum in January at 660p.
Three weeks ago, Kier Group announced they’d be lowering their interim dividend from 23p to 4.9p, a significant reduction, in response to the £35.5mln loss also announced. This has most certainly contributed to the shares rapid decline in price since then, however even whilst reduced, the dividend yield currently sits at 20.6%, a healthy potential risk offset for any investors considering buying on this pullback. They currently have an annual growth potential of 46.5% which far exceeds the sector average of 20.4%.