Two trade credit insurers withdrew credit insurance from the construction contractor last week, the Times reported, although other providers are understood to be continuing to provide coverage.
As credit insurance insures suppliers from potential losses, creditors could demand Kier pay them quicker, putting the group’s finances under even more pressure.
This and a disappointing potential price of the housebuilding unit of £100mln-£150mln sent the shares dropping 19% to 164.4p by early afternoon on Friday.
“At face value, the amount quoted of £100m to £150m would be disappointing for the whole business,” said broker Liberum, as it compares to previous management’s assessment of the value of the residential unit of £291mln at the end of last year.
However, analysts said it was not clear what would happen to the Homes England and Cross Keys joint ventures and suggested Kier was probably also considering selling its property business, or at least accelerating property disposals.
Earlier this month, new chief executive Andrew Davies warned that underlying operating profit for the year would be £25mln lower than previous guidance due to lower-than-expected sales in the building division as well as “volume pressures” in its highways, utilities and housing maintenance arms, along with £15mln of extra costs as Davies accelerated the ‘future proofing’ programme and initiated a strategic review.
Kier, which in March revised up its December-end net debt from £130mln to £180.5mln following an accounting error, also warned this month that it was likely to record a net debt position this month, which would dent its full-year average debt position.
Liberum said the lowly price-earnings ratio of 3.2x is “clearly discounting a lot of bad news” but “there is much to be concerned about” as expected net debt of £36mln may seem manageable but does not reflect a large “creditor stack”.
“Disposals can reduce debt and probably more importantly reduce leverage ratios. However, events are moving fast and disposals are likely to be complicated, given the JVs in Property and Residential, they will be very dilutive.”