Keller Group PLC (LON: KLR)

Keller Group PLC is an FTSE All-Share listed geotechnical solutions specialist having a presence in over 40 countries. Furthermore, the Company offers micro-piling, ground anchors and grouting services, and a range of piling solutions. The key geographical segments include North America, EMEA and Asia-Pacific (APAC). KLR operates through over 50 offices throughout the United States and Canada.

(Data Source: Company Presentation)

Recent trend of dividend payments

KLR has consistently paid dividends over the last 27 years since it got listed on London Stock Exchange. Moreover, the Company had paid an interim dividend of 12.6 pence per share on 10 September 2021, while the ex-dividend date was 19 August 2021,

(Data Source: Company Presentation)

Growth Prospects

• Robust Order Book: The recovery of economic activity across all major markets, particularly in North America and Europe, caused an 11% growth in the order book to £1.2 billion during H1 FY21 when compared with the prior-year levels.
• Operational Safety: KLR had shown accelerated progress on operational safety, reflected by a 27% improvement in the overall accident frequency rate.
• Acquisition Benefits: KLR had completed the acquisition of RECON, and the successful integration would create revenue synergy opportunities for cross selling between Recon, Moretrench and Keller’s Foundations group.
• UK Construction PMI: Despite shortages of materials and staff, the IHS Markit/CIPS UK Construction Purchasing Managers' Index (PMI) witnessed an increase from 52.6 in September 2021 to 54.6 in October 2021.

• Significant Market Opportunities: KLR had an addressable global geotechnical contracting market worth approximately £40 billion. The Company had managed to tap just 5% of the addressable market, reflecting significant opportunities to obtain new contracts.

Key Risks 

• US Inflation: The US annual consumer inflation had reached a record 30-year high during October 2021.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
• Increasing Freight rates: Any increase in freight rates could put pressure on the delivery cost, impacting the margins of the company.
• Disruption in the Supply Chain: The failure of a key supplier to meet its contractual obligations could potentially result in some short to medium-term price increases and other short-term delays and disruptions to the Group’s projects and operations.
• Other Significant Risks: KLR is also exposed to climate change, legislative, fiscal, and regulatory developments, economic and financial market conditions, and risks associated with the impact of the pandemic.

Now we will analyse some key fundamental and shareholders statistics of Keller Group PLC.

Schroder Investment Management Ltd. (SIM) is the most significant shareholder as it holds nearly 21.61 million shares as of 30 September 2021. 

Financial and Operational Highlights (for the six months ended 27 June 2021 as of 03 August 2021)

(Source: LSE Website)

• Marginal Decline in Revenue: Despite giving an encouraging business performance for Q2 FY21, the Company had shown a marginal decline in total revenue to £984.1 million on a constant currency basis.
• Decent Profitability: On the profitability front, the Company had shown a 10% decline in the underlying diluted earnings per share during H1 FY21 caused by higher steel prices in the Suncoast business and unrecognised revenue on suspended contracts in Africa.
• Balance Sheet: The Company had strengthened its balance sheet by showing a significant reduction of around 27% in net debt to £113.4 million as of 27 June 2021.

Financial Ratios (H1 FY21)

 Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 12 November 2021, at 09:55 AM GMT, KLR’s shares were trading at GBX 916.75, down by around 0.68% against the previous day closing price. Stock 52-week High and Low were GBX 1,043.60 and GBX 562.00, respectively.

On a daily chart, the MACD line remained above the signal line. Hence, there could be an uptick in the stock price in the near term.

In the last one year, KLR’s stock has delivered a decent positive return of ~62.21%. Also, it had outperformed the FTSE All-Share Construction & Materials index with a return of about 31.84% and the FTSE All-Share index with a return of about 17.33%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had expected to deliver improved business performance during H2 FY21 boosted by significant operational progress as reflected in the order book. KLR had shown substantial improvement in net debt/EBITDA leverage ratio from 0.9x during H1 FY20 to 0.7x for H1 FY21. Moreover, KLR expects full-year FY21 results to remain materially ahead of the Board's previous expectations. Furthermore, the Company has an adequate free cash flow to fund the interim dividend payment to the shareholders. Thus, it would be advisable for the clients to take a reasonable position in this Company based on their risk appetite as the stock might undergo sizable corrections due to rising inflation worldwide and lower-than-expected UK GDP growth during Q3 FY21.

Considering the strong liquidity profile, robust order book, significant market opportunities, consistent dividend payments, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Keller Group PLC at the current price of GBX 916.75 (as on 12 November 2021 09:55 AM GMT), with lower-double digit upside potential based on 11.93x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.). 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

*The dividend yield is subject to change as per the stock price movement.

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