Sharks circle Kier Group despite construction giant’s ‘future-proofing’ plans
Five funds have raised their bets against Kier Group so far this month, as traders predict the construction giant will be the next big outsourcer to have its shares tumble.
Funds including Blackrock and George Soros-backed SFM UK have raised their short positions in Kier recently, even after the company unveiled a plan in late September to “future-proof” itself by cutting its debts.
Analysts said funds are betting Kier will face a similar fate to outsourcing firms based around a similar model – such as Carillion, which collapsed at the start of this year, and Interserve, which saw its shares plunge to a record low last week.
According to regulatory filings, twelve investors are shorting Kier’s stock, meaning they expect its price to drop. Collectively, short sellers hold 13.7 per cent of its shares, making it the UK’s most-shorted company. Its stock price has already dropped by a quarter since the start of the year.
“It has to tough it out for now, but the shorts are probably also looking at the damage inflicted upon Interserve and thinking Kier is the next domino,” said Kevin Cammack, an analyst at Cenkos.
“The worrying thing for Kier/investors is that the short interest continues to grow even after management has prioritised debt reduction under its ‘Future Proofing Kier’ strategy,” he added. “This suggest that the shorts believe that either Kier will not achieve these de-leverage goals or that the goals in themselves are not enough to turn the investment tide in the company’s favour.”
Kier – which has operations in construction, services, property and residential – has been trying to improve efficiency this year. It aims to cut its average net debt to £250m and hold a net cash position by 2021. In September, it posted a better-than-expected nine per cent rise in profit in full-year profits.
The FTSE 250 firm disposed of its Australian highways business last week, in an attempt to reduce debts and narrows its focus. Its order book is steady, and demand for its property unit has increased, but funds remain sceptical – with two increasing their short position last week.
Kier declined to comment. In an trading update released last week, it said its long-term strategy “positions the group well for an improvement in profitability and cash generation”, adding its “order books and development pipelines remain strong”.
Laith Khalaf, an analyst at Hargreaves Lansdown, said: “The collapse of Carillion highlighted the fragility of the construction services sector and proved a successful trade for short sellers who now appear to have moved their attention on to Kier.”
“Low margins in the sector leave little room for error, while the scale and unpredictability of some contracts inevitably bring with them the possibility of mispricing,” he added.