Kier shares crash as it revises net debt position higher

Shares in Kier Group crashed on Monday as the construction company revised up its net debt position.

Kier revised its net debt position as at 31 December 2018 to £180.5m from around £130m and recalculated its average month-end net debt for the six months to the end of December to around £430m from £370m.

The company said that during the preparation of its FY19 interim results it identified a number of "adjustments", with £10.3m worth related to hedging activities and £40.2m due to the revised classification of the debt associated with certain development assets held for resale.

Kier originally consolidated this debt balance within assets held for resale on its balance sheet but following this re-classification, the debt will be included within its net debt position.

Of the £40.2m net debt, £9.8m relates to assets which have been sold since 1 January 2019 and £14.1m relates to sales subject to binding sale agreements and expected to complete by 30 April 2019. The balance relates to assets which are either being marketed for sale by 30 June 2019 or are under offer.

Kier also said it would incur a £25m non-underlying charge in its interim results from the Broadmoor Hospital redevelopment project following a review of the operational progress and cost recovery programme.

"Whilst the board notes the current political and economic uncertainty in the UK, and the implications for third party investment, the group remains on course to meet its underlying FY19 expectations, with the full-year results being weighted towards the second-half of the financial year, as expected."

Canaccord Genuity said that while underlying consensus earnings may not move materially, clearly expectations for average net debt will move higher.

"While it is arguably not a huge impact on valuation (circa 3-4% estimate on EV), it is not reassuring that following the recent rights issue and update in January, a key financial item of net debt, which is under close scrutiny, is being restated ahead of the interim results.

"This combined with a further exceptional item will not be helpful for the stock’s current rating or in reassuring investors that all issues relating to leverage are behind the group following the rights issue or with confidence in the numbers."

At 0925 GMT, the shares were down 15% to 422.80p.