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Kier Group's divi increase bodes well

Published: 11:18 12 Sep 2013 BST

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Numis Securities has used the occasion of Kier Group’s (LON:KIE) full-year results to lower its rating while upping its target price after the shares’ recent good run.

Kier’s house broker’s rating is eased from ‘buy’ to ‘add’ after the shares advanced from 1147p at the beginning of July to 1,667p at the close on 11 September. The target price is lifted to 1,950p from 1,670p.

“Profit before tax of £63.4mln and earnings per share of 136.2p (both pre IAS19 £17m impact) were in line with Numis estimates, while the +3% increase in dividend compared to our estimate of a flat payment,” the broker noted.

The increase in the dividend may have been small, but it “speaks volumes” about the more positive outlook for the company, in Numis’s view.

“With 100% of construction and 95% of services targeted revenues for the current year secure, Kier is seeing the first signs of an improving construction climate, though conditions remain challenging. The fact that ex-MG Kier can point to better conditions in all of its existing activities illustrates that the group is strongly placed for recovery, which we believe is reflected in the increased dividend payment,” Numis said.

As for the recent acquisition of May Gurney, the broker concedes it is still early days, but management has suggested there is potential to deliver in excess of the £15mln a year cost synergies previously expected in 2015.

Bizarrely, while the house broker is easing back to an ‘add’ rating, another City broker, Investec, is sticking with its ‘buy’ rating, though it too has raised its price target. The new price target of 1,955p, up from 1500p, is remarkably adjacent to Numis’s new target.

“These results compare very favourably with its peer group and underline the benefits of both internal discipline and the mix of business. With the acquisition of May Gurney set to provide the next stage of the Kier evolution, we remain comfortable with our BUY,” Investec’s Andrew Gibb said.

“Despite the strong run in the share price, this remains one of our preferred picks in construction. Whilst on a headline price/earnings basis it does not screen cheaply, with the improving outlook for the UK housing market, this presents a store of value in our sum of the parts valuation,” Gibb said.

Despite the broker lovefest, the shares were down 2.4% to 1,627p in mid-morning trading.

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