KIER Group Rights Issue announcement 30th Nov

Monday, Dec 03 2018 by

Market reaction same as if 'profits warning' had been announced - 32.5% drop on the day (Friday) followed by another 5% so far today (Monday).

Although Stockopedia Rank of Kier Group not particularly good, prior to 30 th Nov, nothing stood out to me as a red flag.

Am I missing something important here? If so, I would like to know about it.

I read that Neil Woodford owns Kier in both his UK Equity Income and Income Focus Funds, and bought some shares as recently as August.
My point being - if he can't get it right, What chance have I got?
I was interested in your educational video on profit warnings. Does the same apply to Rights Issues?

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Kier Group plc is a property, residential, construction and services company. The Company's segments include property, residential, construction and services. The property division encompasses property development and structured finance, and operates across various sectors with a focus on industrial, commercial, retail, leisure sectors and public sectors. The residential business includes mixed tenure housing partnerships and private house building and its clients include local authorities, housing associations and private rented sector. The construction division comprises the United Kingdom regional building, the United Kingdom infrastructure and international businesses. The services division comprises strategic and local authority highways maintenance, utilities, housing maintenance, Kier Workplace Services and environmental services. It operates across sectors, including defense, education, health, highways, housing, industrials, power, property, transport and utilities. more »

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5 Posts on this Thread show/hide all

JohnWigg 3rd Dec '18 1 of 5

The 'red flag' has been flying for ages, with the share price down 2/3 over about five years. Look at the margins, the debt, and the experience of similar companies starting with Carillion (already bust).
Neil Woodford? His stock picks recently have been disastrous, you could almost rate him as a contrarian indicator of what to buy.

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gus 1065 4th Dec '18 2 of 5

Not a holder of Kier (LON:KIE) but accept JW’s comments that they’re in a tough sector and recent performance appears to be poor.

On the wider point of rights issues compared to profit warnings, I think they’re different animals and while it’s hard to have a “good” profit warning, rights issues aren’t necessarily a bad thing in that it depends on why the company wants to raise new equity. If the reasons are sound (e.g. to fund an earnings enhancing acquisition), then the rights issue can sometimes help lift the share price.

One thing to bear in mind is that some of the apparent fall in the share price is “mechanical”, in that the new shares are usually offered at a steep discount such that the overall price of a blended “new” share is lower than the original share price when the issue is announced. In the case of Kier (LON:KIE) , shares were offered on a 33:50 basis at a price of 409p when the market price was 725p. If you do the maths (((33 x 409) + (50 x 725))/83), then the theoretical ex rights diluted share price was approximately 599p, roughly a 17% discount to the 725p at the time it was announced. This accounts for some, but certainly not all of the 38% fall to yesterday’s close at 446p.

The substantial additional fall suggests the reasons for the issue (to use the proceeds to reduce debt?) have spooked the market that there are deeper problems than previously thought. Not sure the rights issue itself is the problem (other than that maybe investors don’t have/don’t want to put in more equity so they become sellers/don’t take up their rights) but perhaps the “canary in the coal mine”.


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dangersimpson 4th Dec '18 3 of 5

I think there is more to come in the Construction & Professional Services Industries. If Kier (LON:KIE) need to raise money then there are candidates that are in much greater need. This is my list of candidates based on current ratio < 1, gearing  > 50% and negative OCF.

Serco (LON:SRP) & Mitie (LON:MTO) stand out given their size and in my opinion they need to raise cash fairly soon given how spooked the market has been with the Kier (LON:KIE) raise. They don't have the same level of construction exposure but not sure that is going to help them given their financial metrics.

Much better to be a Kier (LON:KIE) than a Carillion (LON:CLLN) !


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herbie47 6th Dec '18 4 of 5

I do hold a few Kier (LON:KIE) shares, only because I have lost the share certificate. I was thinking of selling my rights.

Will I receive a new certificate?

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twiggytwo 7th Dec '18 5 of 5

Kier has been one of the most heavily shorted stocks recently, normally I would take this as a big warning sign to get out. Needless to say I did not. Rhymes with idiot as I should know better. The one occasion when my heart ruled my head as I have dived in and out of this company making a profit each time. Can't always get it right.

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