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The two big Kier bets

David Price

Kier will release its annual results on Thursday and the big bets are split over which way the numbers will go.

On the one side we have the short sellers.

As of this evening, 10.3 per cent of Kier’s stock is being shorted by a collection of funds (although other reports have put it as high as 18 per cent).

This makes Kier the most shorted contractor in the UK, with Interserve having 6.9 per cent of its stock shorted by comparison.

It is worth pointing out though that at around £10.30 a share, Kier’s stock has more scope for a fall or correction than Interserve’s, which is trading close to 57p – Kier could fall 20 per cent and still be worth around £8 a share.

The shorting of Kier’s stocks has built quickly, having sat close to zero shortly before its half-year update was released on 15 March.

The main trigger for this build-up has been the company’s debt, which has increased from £30m in 2012 to £671m as of last December after a number of buyouts in recent years.

And according to Kier’s last trading statement, average month-end net debt is relatively high at £375m.

The short position that began building in March was driven further in June when Barclays released a research note suggesting the firm’s earnings were not that strong when the debt it had taken on was considered.

The bank also warned that Kier had become more dependent on the performance of its joint ventures, especially in property, which added off-balance sheet liabilities it said were hard to fully quantify.

Adding to the feeling that the contractor might be having a wobble, in July Kier announced it was implementing a cost-cutting programme – or “streamlining”, as the company put it.

Investor sentiment towards contractors has worsened due to Carillion’s collapse and Interserve’s problems. But even taking this into account, the aforementioned factors give those looking for a stock to short plenty of incentive to choose Kier.

This makes the big Kier bet on the other side of the table all the more intriguing.

On 24 August, Woodford Investment Management was revealed as having upped its stake in Kier from 5 per cent to 10 per cent.

Woodford is no vulture fund, and is run by the closest thing the UK investing industry has to a household name: Neil Woodford.

Mr Woodford first made a name for himself while running a fund for Invesco Perpetual in the late 90s, when he steered clear of tech firms in the run-up to the dotcom crash and saved millions.

His style is to go against the prevailing sentiment and buy up undervalued stocks, apparently seeing the true value that others have missed.

However, some of his lustre has faded over the past couple of years, with clients not getting the returns they hoped for – especially on new, more speculative funds he has launched.

With the short sellers circling, Kier must hope Mr Woodford retains some of his talent for investing in strong firms – and that his decision to go against the prevailing wind proves correct once again.

On Thursday we’ll find out which bet was best.

Readers' comments (1)

  • Just a point - a 20% fall on £ 10 shares is exactly the same as a 20% fall on 57p shares. You would lose the same given a fixed investment! The individual shareprice compared against another individual share price is meaningless.

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