Construction in crisis: Where did it all go wrong for Kier?
Construction outsourcer Kier Group has had a tricky few months. First, it became the most shorted stock on the market, with hedge funds drawing direct comparison to failed competitor Carillion. Since then, it has bungled a rights issue, lost its chief executive and seen its share price plummet more than 39 per cent. Morning Wire tracks how it got to this stage.
Cost savings programme announced – 10 July
Kier announces plans to sell its non-core assets as part of a wider cost-savings programme. This follows similar moves from other outsourcers as market conditions deteriorate after Carillion’s collapse.
Short sellers circle – 19 November
It emerges 12 hedge funds have raised their bets against Kier, predicting it will be the next big outsourcer to hit the rocks after Carillion. Short sellers including Blackrock and George Soros’ SFM UK hold 13.7 per cent of its shares, making it the most shorted stock on the market.
Investors flee on rights issue – 30 November
The firm’s shares nearly halve on the news it plans to sell new shares to existing investors at a knock-off one-third discount in a bid to raise funds. The outsourcer says it is raising £264m to slash into its net debt of more than £600m.
Ken Odeluga, market analyst at City Index, says Kier's success now rests on how many investors decided to buy the discounted shares. "If there is a good take up we might see a long term improvement for the company. If not it’s bad news."
An industry insider later tells Morning Wire: “I have no idea what they were playing at. It seems like either a horrendously misguided error or an act of wilful self-harm.” In the next eleven days, Kier’s shares fall 49.1 per cent in value to 376.4p.
Rights issue flops – 20 December
Kier admits investors only bought 37.6 per cent of the shares offered in its rights issue, forcing the firm’s banks – who agreed to underwrite the move – to fork out millions to make up the difference. AJ Bell investment director Russ Mould says it “shows how little faith shareholders have in the business.”
Woodford gets his way – 23 January
Veteran investor Neil Woodford, who holds around one-sixth of Kier’s shares, loses patience. It emerges he is spearheading a push to unseat chief executive Haydn Mursell. Other major shareholders are also reportedly supportive of the plan.
Like clockwork, Mursell announces his departure the next week “with immediate effect,” at the same time as posting a solid trading update in which the firm said it is still on course to meet full-year expectations. Woodford ups his stake in the firm by roughly £7m.
Shares down on sell-off reports – 28 January
Shares drop another four per cent as it emerges Kier is selling off more of its business – its housing maintenance arm – to further cut debt. Estimates put potential returns between £20m and £30m. This, combined with the rights issue, leaves Kier with roughly £300m debt left to pay off.
Where the money will come from is anyone’s guess.