- Firm raised guidance last October
- Profit seen ‘significantly’ above forecasts
- Shares still on just six times 2024 EPS
While most construction and housebuilding stocks are trading lower after the surprise uptick in UK inflation, which could delay the Bank of England’s rate cutting schedule, FTSE 250 infrastructure group Keller (KLR) is heading higher after a positive full-year trading update.
The shares rallied as much as 64p or 7.7% to 894p before settling at 854p for a rise of 24p or just under 3%, although if the FTSE 250 index wasn’t down nearly 2% Keller might have kept hold of its opening gains.
SECOND MAJOR UPGRADE
After a positive nine-month trading update and an increase to its full-year earnings expectations last October, the world’s largest geotechnical specialist contractor revealed it had experienced a ‘particularly strong’ end to the year and now sees underlying operating profits ‘significantly ahead’ of market forecasts, marking a second major upgrade to expectations.
The surprise boost to operating income looks largely to be down to the firm’s North American operations, where management action to lift performance in the foundations business during the second half led to ‘a material and sustainable improvement’ in operations and profitability.
In addition, better-than-expected pricing at Suncoast and the contribution from three large foundation projects which were ‘particularly well executed’ generated materially above-average levels of profitability.
While these events are unlikely to recur in 2024, they were enough to offset challenging conditions in the European business, where weak demand and a competitive pricing environment have impacted profits, and the lack of work on the much-anticipated Saudi project The Line, although the firm has won an $80 million contract for another part of the NEOM development.
Another positive development was the return to form of the Australian business, which should report a record year following ‘very high levels of demand and improved operational execution’.
EXPERT VIEW
Liberum analyst Joe Brent wasted no time in raising his full-year earnings per share forecast for Keller by a further 15%, after a 16% upgrade last October, and reduced his net debt estimate due to higher profits and better working capital management.
Brent has a £14.50 target on the shares, up from £14 previously, and calls the current 2024 price to earnings ratio of 6.1 times ‘cheap given the positive momentum’.
