A profit warning from Kier Group PLC (LON:KIER) has led Liberum to cut its target price on the stock to 320p from 400p.
The outsourcer on Monday warned that underlying operating profit for 2019 will be £25mln lower than its previous guidance due to weaker-than-expected sales in its building division as well as “volume pressures” in its highways, utilities and housing maintenance arms.
A further £15mln of restructuring costs will also hit profits.
Kier added that it expects to report a net debt position for the end of this month, which would have an “adverse impact” on its financial year 2019 average month-end net debt position.
Liberum said it expects a £250mln reduction in total revenue for the year along with a £70mln swing from net cash of £38mln to net debt of £36mln.
It predicts a £40mln reduction in profits and a £30mln additional working capital outflow.
However, the broker maintained a ‘buy’ rating on the shares, saying: “The revised calendar year 2019 enterprise value/earnings (EBIT) of 4.5x is a little below the sector average of 5.4x.
“Risks also look discounted on a price-earnings of 4.5x, versus the sector average of 7.4x.”
On the group’s restructuring plan, Liberum believes it will provide “some benefit” in the second half but won’t deliver an annualised benefit until 2020.
The broker expects an update on Kier’s strategic review in July and more detailed guidance for 2020 at the preliminary results.
“Whilst the cost savings should fully benefit 2020 we expect that (CEO) Andrew Davies will take a cautious approach to guidance,” it said.
Shares in Kier were down 41% to 163.4p in mid-morning trading.