Kier has made bids for the United Utilities £3bn construction framework and a £390m Staffordshire highways deal, after boosting its bidding capacity due to its takover of May Gurney.
Chief executive Paul Sheffield highlighted the deals as among those it can now bid for due to its extended capability following the £221m acquisition.
Mr Sheffield was speaking to Construction News after Kier posted a £20m drop in pre-tax profits to £43m in its preliminary results for the year to 30 June.
He attributed the drop to a reduction in construction volume rather than bid quality, which also resulted in a slight reduction in percentage margin.
The takeover of May Gurney has not seen any loss of contracts, and Mr Sheffield added that expected savings of £15m in the financial year ending 30 June 2015 could now be achieved quicker.
Around 200 jobs have been cut as part of Kier’s restructuring, as reported by Construction News in April.
It has closed four offices in Euston, Bromley, Edinburgh and Wisbech, while it has opened one new office in Cambridge.
Mr Sheffield said there would be more office closures as a result of its takeover of May Gurney to make the new business as “light as it can be”, but that it was “pretty much done” in terms of Kier’s restructure.
The chief executive said that where it would have had to joint venture historically for a deal such as the £3bn United Utilities Construction Delivery Partners Framework, it has now partnered with Veolia and May Gurney to “provide a total solution in the way that [United Utilities] want the framework to go”.
United Utilities has pre-qualified 12 for the £3bn framework.
They are: Balfour Beatty/MWH; Black & Veatch/Farrans; Costain; Enterprise/Jacobs; Galliford Try/Aecom; Kier/Veolia; Laing O’Rourke/Atkins/Imtech; Murphy/Interserve; Mott MacDonald Bentley; Nomenca/Barhale; VolkerStevin/CH2M Hill.
Carillion prequalified, but has since pulled out of the procurement process.
Referring to the Staffordshire bid, he said that Kier should now “be able to do everything ourselves” in the local authority area, but warned that local authorities were still inclined to fill potholes rather than spend on resurfacing works that would end up being more cost-effective.
Mr Sheffield said he believes a new government would not cut infrastructure spending, as Labour has been “even more strident” about the need for investment.
The 2013 infrastructure survey of business leaders by KPMG and the CBI showed the proportion of businesses that believed the government’s policies would have a positive impact on infrastructure had dropped 4 percentage points to 35 per cent.
But asked whether the fact that 49 per cent of Kier’s construction work is in the public sector was too high, Mr Sheffield said he expected that cuts to public sector construction had bottomed out.
What the analysts say
Andrew Gibb, Investec “While its end-markets remain challenging, Kier’s FY results reveal a resilient performance, both in terms of margins and cash. It was also encouraging to see the increase in dividend – perhaps a sign of some confidence returning on future growth prospects.”
William Shirley, Liberum “We reiterate our view that Kier can double earnings over the next four years (to June 2017) without requiring a material improvement in the UK macro. A 12m forward P/E (market price per share divided by annual earnings per share) of 13x implies a valuation in June 2016 of £25 – 50 per cent up on the current price (over and above the cumulative 12 per cent dividend). This implies a total annual return of circa 20 per cent over the next three years.”
Howard Seymour, Numis “MG is clearly integrating well and cost synergies are likely to be increased in 2015, while in the existing business more positive construction noises plus good outlook elsewhere illustrate that the group is in a strong position to show progressive organic growth from here.”
The firm pointed to recent successes in its property division, which it sees as a big growth market. Mr Sheffield said that while property growth had “been very London-centric”, that there were opportunities arising in other parts of the country.
Mr Sheffield pointed to Kier Property’s recent £100m deal as development partner to redevelop the historic former Swan Hunter shipyard in Tyneside.
Kier has exclusive development rights for the site on the waterfront and is seeking advanced manufacturing firms as end-users for the site.
In its preliminary results, Kier said construction revenue was 5 per cent lower than 2012 at £1.31bn (2012: £1.38bn), something it attributed to poor weather in the first quarter of 2013, which caused delays and pushed revenues into the 2014 financial year.
Underlying pre-tax profit was £63.4m (2012: £70m). Its net cash was £60m (2012: £129m) after investment of around £77m during the year and average month-end net debt was £4m (2012: average month-end net cash of £95m).
UK building revenue fell to approximately £1bn, which Kier said was a result of its “focus on the quality of work” it pursues. This reduction had, it said, been partially mitigated by growth in UK infrastructure and overseas revenues.
Operating margin was at 2.3 per cent (2012: 2.5 per cent), while it increased the dividend by 3 per cent.