viewKier Group PLC

Kier shares tank as it revises debt higher after disappointing rights issue

Kier maintained its expectations for the 2019 financial year while noting the “current political and economic uncertainty in the UK”.

Shares fell more than 9% in morning trading

Kier Group PLC (LON:KIE) shares sank on Monday as it revised its debt position £50mln higher and said it would take a £25mln hit on its Broadmoor Hospital redevelopment project.

Following a disappointing rights issue and the resignation of its chief executive Haydn Mursell, Kier said it has recalculated its net debt position for December 31 to £180mln from the £130mln previously disclosed.

READ: Kier Group CEO steps down after disappointing rights issue as firm maintains guidance

It has also revised its average month-end net debt for the six months ended December 31 to £430mln from £370mln.

Kier said it identified £10.3mln of adjustments related to its hedging activities while preparing its interim results and has revised £40.2mln worth of debt associated with certain assets held for resale.

“The group originally consolidated this debt balance within assets held for resale on its balance sheet; following the re-classification, the debt has been included within the group's net debt position,” the company explained.

“Of the £40.2mln net debt, £9.8mln relates to assets which have been sold since 1 January 2019, £14.1mln relates to sales which are subject to binding sale agreements and expected to complete by 30 April 2019 and the balance of £16.3mln relates to assets which are either being marketed for sale by 30 June 2019 or are under offer.”

Broadmoor Hospital provision 

Kier also said it would take a £25mln provision related to its long-running contract to redevelop Broadmoor Hospital after reviewing the operational progress and cost recovery programme of the project, which is nearly two years behind schedule.

The company said the first phase of the project is expected to be handed over shortly and the remaining work will begin soon after that. 

Kier maintained its expectations for the 2019 financial year while noting the "current political and economic uncertainty in the UK".

In December, Kier revealed that just 38% of its rights issue shares were taken up by shareholders, leaving underwriters to pay out the bulk.

Mursell stepped down as chief executive a month later.

Chairman Philip Cox has been appointed the executive chairman and he, along with finance director Bev Dew and chief operating officer Claudio Veritiero, will oversee the company’s operations until a new chief executive is found.

Shares fell 9.7% to 448.6p in morning trading.

Liberum keeps 'buy' recommendation 

Liberum reiterated a 'buy' rating and target price of 660p, citing an "attractive and growing dividend yield of 5.5%."

The broker expects weak cash flow in the first half and estimates full year net debt to be boradly stable at £186mln. 

"If management can deliver on its target of £20-40mln of de-leveraging per annum, in addition to its previous forecast of £71mln of dividends and £20mln of cost savings in fiscal year 2020, that suggests free cash flow of £111mln to £131mln, or a yield of 13.8% to 16.3%."

Quick facts: Kier Group PLC

Price: 51.8 GBX

Market: LSE
Market Cap: £83.98 m

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