Analysts rethink stance on Kier following shock rights issue

Analysts at Liberum put Kier under review on Monday, noting that, while it will give the construction services outfit a stronger balance sheet, last weeks' rights issue left the group's cash flow looking poor.

Kier secured backing to raise £264m in a rights issue to reduce borrowing as management saw increased risks associated with its net debt position.

The FTSE 250 group plans to issue 33 new shares at 409p per new share for every 50 existing shares on Friday in order to raise roughly £250m - a 34% discount to the theoretical ex-rights price.

Liberum, which previously had a 'buy' rating on Kier, said the issue resulted in "a stronger competitive position" and noted that it could, in time, result in higher margins.

Given the £650m in investment assets, which management opted not to sell, and the firm's expected net cash in June 2019, Liberum anticipates Kier's balance sheet "will be stronger" but also noted that "cash flow will look poor".

The broker reduced its 2019 and 2020 earnings per share by 33% and 42% to 85p and 93p on a post rights basis.

Over at Canaccord, analysts were surprised by the rights issue but noted it would "clearly improve the balance sheet and reduce the financial risk of the group".

While Peel Hunt noted that lender concerns towards construction exposure could have an impact on uncommitted facilities and future financings as "potential customers and clients are also increasingly focused on service providers balance sheets".