SIF Portfolio: McBride Slides But Super Stock Keller Group Shows Promise

10th Jan '18 by Roland Head

4 comments 6073 reads

My SIF screen continues to provide slim pickings in this buoyant market. But one new qualifying stock has emerged this week.

Geotechnical specialist Keller Group is essentially a groundworks contractor. But the firm operates at the top end of this market, delivering large and complex projects in more than 40 countries.

Case studies from the firm’s website include £80m of work on Crossrail, providing support for historic London buildings under which new tunnels were being dug. Keller says that it was able to “control movements at the ground surface to within 1mm”, which sounds impressive. Other examples include providing foundations for power stations, oil refineries - and most recently for Australia’s tallest building.

I missed the chance to buy at under 900p last year, but Stockopedia’s never-sleeping algorithms have picked up on the improving performance of this company. Strong scores across the board have given the firm a StockRank of 98 and a StockRank style of Super Stock.

Keller also passes all 14 of my screening rules. So it’s time to decide whether I should add it to the SIF portfolio.

But before I do that, I’m going to take a quick look at this week’s profit warning from portfolio stock McBride.

A quick word on McBride

McBride produces private label consumer goods products. A bit like Reckitt Benckiser or Unilever, but without the premium brands. It joined the portfolio in April last year, since when performance has been disappointing. And things got worse this week.

Prior to Monday, earnings per share were expected to rise by around 20% during the year to 30 June. But in a profit warning on Monday, the company said it expects full year earnings to be “broadly in line with the prior year”. So a small drop in year-on-year earnings is possible.

The firm has reported two problems. The first is that revenue in its Personal Care & Aerosols (PCA) division fell by 12% during H1. The second problem is general cost inflation, with raw materials, labour and transportation costs all cited.

I suspect there could be a third problem, not yet apparent. The company says that its other division, Household, is taking market share from rivals. But at what cost? To free up resources to satisfy a recent surge of orders, the firm has “decided to defer…

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Benson

11th Jan '18

Beautiful explanation of this company and how it is made up and assessment of its chances for the coming 12 months
Thank you Roland
This share has been on my watch list for about 18 months because it as you say a quality company I will look at it again as I too feel that the coming year should be a good one for Keller because of the hoped for improving if sometimes rocky world economy
Bence

muckshifter

12th Jan '18

Not a share that generates much enthusiasm Roland, as perhaps noted in one of my posts on SCVR of 5th Jan. I think many investors, including Paul Scott, are put off by the combination of low margins and high "accident" rates in the general construction sector, which now, unlike KLR, isn't solely construction.

KLR, however, remind me of a company I worked for in the past, where conservative contract reporting was encouraged as a way of ensuring reasonably smooth progress - which was well reflected in the share price of the company. I think you missed Europe as one of the causes of their slow progress over the last few years, so the improving situation there, combined with the slow return of work for the commodity producers, should provide a good basis for improvement, with the US infrastructure push as the icing on the cake IF it occurs.
Regards, and thanks for a good write up on KLR.

Roland Head

Hi muckshifter,

Thanks for your comment. I'm guessing from your username and comments that you've some experience in this sector - it's good to have a more informed perspective.

You make a good point about Europe -- here in Brexit UK, it's easy to forget that several large EU economies are on a slightly different trajectory to us, and are enjoying improving economic conditions.

From my outside perspective, I get the impression that Keller (LON:KLR) is a genuine specialist and is one of the best in its sector. That being so, my hope would be that its expertise would be less commoditised than would be the case with more general construction firms. This, coupled with a culture of good engineering, will hopefully provide some protection against "accidents"...

Regards,

Roland

Hello Roland,
Yes Keller is a long standing genuine specialist in ground engineering with a long history of expanding it's repertoire through selected acquisitions, while also often using those acquisitions to expand its geographical footprint. They are not , and imho never will be, part of the "commoditised" construction industry, but they still face competition. The high risk nature of their work, however, largely removes the risk of "cut throat" competition, and their size allows them to smooth out problem jobs which might bankrupt smaller competitors.
Regards.

SIF Portfolio: McBride slides but super stock Keller Group shows promise

A quick word on McBride

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Roland Head

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