Keller Group PLC (LON: KLR)

Keller Group PLC is an FTSE All-Share listed geotechnical solutions specialist having its 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.

On 18 May 2022, the Company has scheduled its Annual General Meeting (AGM).

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 will pay a final dividend of 23.3 pence per share on 01 July 2022, while the ex-dividend date will be 01 June 2022.

(Source: Company Presentation)

Growth Prospects

• 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.
• Acquisition Benefits: KLR had completed the acquisition of RECON, and the successful integration had created revenue synergy opportunities for cross-selling between Recon, Moretrench and Keller’s Foundations group. As a result of which, the North American business performance demonstrated a significant improvement during H2 FY21.
• UK Construction PMI: According to the IHS Markit/CIPS, the UK Construction PMI went up from 56.3 in January 2022 to 59.1 in February 2022, illustrating a robust and accelerated rise in output volumes.

Key Risks 

• 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.
• Record UK Inflation: British inflation hit a 30-year high of around 6.2% during February 2022, which may cause a further interest rate hike.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.

Key Fundamental and Shareholders Statistics of Keller Group PLC.

Schroder Investment Management Ltd. (SIM) is the most significant shareholder as it holds nearly 7.26 million shares as of 31 December 2021.    

Financial Highlights (for the 12 months ended 31 December 2021, as of 08 March 2022)

(Source: Company Filings)

• Top-Line Business: The increased trading activity, particularly during the second half, had resulted in a solid growth of around 13% in total revenue at constant currency during FY21.
• Profitability: The statutory diluted earnings per share grew from 58.50 pence during FY20 to 86.10 pence for FY21.
• Balance Sheet: The Company had shown a marginal improvement of around 1% in its net debt as it stood at £119.4 million as of 31 December 2021.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 25 March 2022 at 08:04 AM GMT, KLR’s shares were trading at GBX 828.00, down by around 0.48% against the previous day closing price. Stock’s 52-week High and Low were GBX 1,043.60 and GBX 670.00, respectively.

On a daily chart, the stock price is sustained above the 20-days exponential moving average of GBX 807.40. Hence, there could be an uptick in the stock price in the near term. Also, the MACD line has given a bullish crossover against the signal line.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

KLR has ended FY21 on a good note as it gained positive operational momentum with a robust order book of nearly £1.3 billion as of 31 December 2021. Moreover, KLR remained well-positioned to benefit from the accelerated macroeconomic recovery and increasing levels of public infrastructure spending in the chosen markets. The Company would continue to generate increasing shareholder returns through underlying profit growth and the progressive dividend policy. In a nutshell, KLR has a long-term strategy to achieve financial resilience with consistent dividend payments, strategic actions, and market-leading positions.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

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 “Speculative Buy” recommendation on Keller Group PLC at the current price of GBX 828.00 (as of 25 March 2022 at 08:04 AM GMT), with lower-double digit upside potential based on 9.75x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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