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Kier’s shorting is about more than Brexit

David Price

A few weeks ago Kier reported a pre-tax profit of £106m. Yet that didn’t do much to ward off the short-sellers, who are still controlling around 10.2 per cent of its stock.

Kier’s finance director Bev Dew sees the bets against his company as being driven – at least in part – by the uncertainty over Brexit.

The more uncertainty grows, the more investment in the UK is withheld and the more the pound falls.

This brutal combination of falling demand and rising costs makes the trading environment for contractors such as Kier all the tougher – that’s basically how the reasoning goes.

Really though, is it all about Brexit?

If Theresa May can deliver some sort of deal that doesn’t plunge Britain into a trading crisis, then Kier’s shares – along with those of most companies – will undoubtedly jump.

However, for the shorts, questions will remain until Kier’s average net debt starts moving down. Mr Dew acknowledged this, emphasising that Kier wanted to show that “we control the debt; the debt doesn’t control us”.

For all contractors, however, the current market poses other major challenges – several of which bear no relation to Brexit and most of which are beyond their control.

Chief among them is the prospect of rising costs.

Construction activity on the continent is growing, pushing up the price of imported goods. Meanwhile there are murmurings that oil, which is currently $80 a barrel, could soon hit $100 and maybe more.

On top of this we have labour costs, which will continue to rise amid ongoing skills gaps.

These shortages are unlikely to be addressed in the short term, given how long it will take to train enough new apprentices, coupled with the Conservatives’ commitment to reducing immigration – regardless of economic arguments.

We are also seeing deep-rooted changes to demand in the commercial sector – as shown by today’s CPA forecast – driven in part by the widely reported turmoil in the retail market.

Finally, we could be witnessing a major shift in the global economic cycle with US interest rates rising, which could signal the end of a decade-long era of cheap finance.

Against this backdrop, investment in speculative property development such as offices could be heading further down – regardless of what happens with Brexit.

Make no mistake: leaving the EU will have deep and far-reaching consequences for the construction industry and companies such as Kier.

However, there are other significant developments that UK contractors must contend with, from systemic changes such as upheaval in the retail sector through to cyclical ones such as rising interest rates.

In the short-to-medium term, these factors could prove just as crucial to confidence in UK construction as Brexit.

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