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Kier up as Liberum says model "complicated but robust” as it resumes with ‘buy' after rights issue

The 'house' broker set a target price of 660p on the FTSE SmallCap firm’s shares, with the stock currently trading at 520p, up 2% on Monday’s close
Construction worker
Liberum's analysts said leverage remains the key issue for Kier, but the investments and positive working capital in services should not be overlooked

Kier Group PLC (LON:KIE) saw its shares rise on Wednesday as ‘house’ broker Liberum Capital resumed coverage of the stock with a ‘buy rating following the construction contractor's recent rights issue saying it has a “complicated but robust model.”

The City firm set a target price of 660p on the FTSE SmallCap firm’s shares, with the stock currently trading at 520p, up 2% on Monday’s close. 

READ: Kier Group shares drop as just 38% of rights issue shares taken up, but firm still to net £250mln

On 20 December 2018, Kier revealed that just 38% of its rights issue shares were taken up by shareholders, although the fully-underwritten cash call still netted the firm the £250mln it sought.

The group launched the 33-for-50 rights issue in November and was looking to issue 64.5mln new shares at 409p each, although just 24.3mln of the shares were taken up.

Kier – then the London market’s most shorted stock – said the rights issue was being undertaken to reinforce strong positions in its growing markets over the long-term.

The company added that it believed, however, that the risks associated with the group's net debt position have recently increased, and that the cash call will better position Kier in light of tighter credit markets and more stringent tender pre-qualification requirements.

In a note to clients on Wednesday, Liberum’s analysts commented: “Hedge funds have sowed doubts over accounting and the post-Carillion world has proved fertile ground. However, we estimate crude cash conversion of 102% over eight years, which is all the assurance we need.“

They said leverage remains the key issue for Kier, but the investments and positive working capital in services should not be overlooked.

The analysts concluded: “Post rights, we expect net cash in June and nearly neutral average monthly net debt in 2021.”

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