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Kier shares surge on reassuring trading update amid Carillion concerns

Kier is on track to deliver double-digit profit growth for the year

Kier
Kier says its construction and services order book 'remains strong'

Kier Group PLC (LON:KIE) shares surged on Thursday as the construction group said it traded in line with expectations in the first half and again reassured investors about contracts it operated with Carillion PLC (LON:CLLN).

The company and Carillion were involved in joint ventures, including the construction of the HS2 rail project and the UK public sector smart motorways scheme.

READ: Kier doesn’t expect Carillion’s collapse to affect its own business

Following the collapse of Carillion, Kier and contractor Eiffage have assumed responsibility for the HS2 contract. Kier has also taken full responsibility for the smart motorways contract.

The group reiterated these contracts are “all performing well, operationally and financially”.

In late afternoon trading, Kier shares were over 14% higher at 1,098p.

Thursday’s update follows previous attempts to soothe worries about the likely impact of Carillion’s demise.

Double-digit profit growth expected

Kier said it was on track to deliver double-digit profit growth for the year and to achieve its 2020 targets after a strong first half performance.

"Our first half performance continues to demonstrate the strength and stability of the business and the benefits of our client-focused strategy,” said chief executive Haydn Mursell.

While net debt will be higher than a year ago due to investment in its residential business, Kier said it should come down over the period to 2020.   

Net debt at the end of 2017 will be in the range of £230mln to £240mln, compared to £179mln last year, including the debt of recently acquired infrastructure services provider McNicholas.

Order book 'remains strong'

Kier said the McNicholas acquisition is “performing well and provides a highly complementary addition to our utilities services business”.

The combined construction and services order book “remains strong” at £9.5bn, securing all of the expected revenue for 2018, it said.

The Highways business is in talks with Highways England for three-year extensions to its Area 3 and 9 contracts, with a final decision expected by the end of March 2018.

Carillion collapse hits small businesses 

While Kier appears to have dodged a bullet with Carillion's collapse, others have not been as lucky.

Small businesses are owed £141,000 on average by Carillion, according to a survey of building, engineering and electrical firms by industry bodies.

Lloyds Banking Group PLC (LON:LLOY), Royal Bank of Scotland Group PLC (LON:RBS) and HSBC Holdings (LON:HSBA) have said they will provide funds to support small firms affected by Carillion's failure.

Insurers have said they will pay more than £30m to businesses owed money by Carillion, which went into liquidation with a £900mln debt pile and £600mln pension deficit.

READ: Carillion directors to be questioned by MPs over contractor's collapse

Firms that had insurance policies against bad debts are being paid out sums ranging from £5,000 to several million pounds.

However, only a minority of companies had insurance cover, meaning most of Carillion's suppliers risk getting little or nothing back.

Lawmakers have called on Carillion’s former chief executive Richard Howson, who left after a profit warning in July, interim chief executive Keith Cochrane and chairman Philip Green, to give evidence on what led to the company's demise.

 -- Updates share price --

Quick facts: Kier Group PLC

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LSE:KIE

Price: 121.8 GBX

Market Cap: £541.09 m

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