Kier showing 'multiple possible red flags', JPMorgan downgrades

Kier Group’s poor cash flow track record "somewhat reduces" JPMorgan Cazenove's confidence in medium-term guidance from the construction group, leading analysts to downgrade their stance on the shares.

Latest results from Kier showed presented new 2021 period-end and average net debt guidance of £0m and £250m, which management expect to benefit from the new Future Proofing Kier programme.

Since the 2013 financial year, Cazenove noted that Kier’s year-end net debt has increased by £246m, while average net debt has increased by £371m despite the average capital employed in Residential and Property having remained essentially flat over the same period.

The primary cause of this poor cash performance, analysts said, appears to have been circa £242m of cash exceptionals in the six-year period.

"Kier’s valuation is clearly optically attractive, in our view, and we expect a successful delivery of management’s guidance to be taken positively by the market. However. given the company’s poor cash flow track record and what we see as multiple possible 'red flags' (such rising net debt, average vs year-end gap widening, reverse factoring, JV usage, exceptionals etc), we prefer to be 'neutral' for now."

The analysts cut the share price target to 1,042p from 1,369p to reflect lower confidence in the group’s medium-term cash flows, moving the rating off its previous 'overweight'.