I’m on the hunt for a FTSE 250 growth stock to fire up my portfolio, and Keller Group (LSE: KLR) immediately jumped out at me.
The Keller share price is on fire. It’s up 119.29% over one year and 154.99% over five. It jumped almost 15% over the last month, the third-best performer on the index. Bumper first-half profits helped.
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So why don’t I own it? Or rather, why has it completely slipped my attention until now?
Can Keller keep growing at speed?
I’ve been focused on buying bargain FTSE 100 dividend stocks over the last year. Now I want to inject a bit of growth into my portfolio. Can Keller oblige?
In its own words, Keller is the world’s largest geotechnical specialist contractor, laying the foundations for construction in projects across the globe. Given that its market cap is just £1.19bn, it has plenty of room to grow. Provided it can scale up. With 9,500 employees and operations across five continents, Keller reckons it can.
It’s taken a long time to get to this point, having been founded way back in 1860. It was bought by GKN in 1974, but became Keller again after a 1990 management buyout, then listed on the LSE in 1994. It has expanded slowly but steadily by acquiring foundations specialists across Europe, the Americas, Asia and Australia.
It’s been quietly doing its thing for years but investors woke up to the opportunity on 6 August after it reported a 121% jump in first-half statutory pre-tax profits to £95.3m. Sales rose a less impressive 2% to £1.49bn, but that was mostly due to lower revenues at its Texas-based Suncoast subsidiary and NEOM project in Saudi Arabia.
Revenues are inevitably bumpy for firm involved in big projects, as old contracts expire and new ones begin. Keller’s return on equity looks pretty solid at 24.9% but as this chart shows, it can be bumpy. Obviously, the pandemic played a big part in this.
Chart by TradingView
Is this FTSE 250 stock good value?
The board now expects full-year performance will be “materially ahead” of current market expectations. It also lifted the dividend per share 19% to 16.6p. Keller has a trailing yield of 2.76%. Better still, it’s covered 3.5 times by earnings, and is forecast to hit 2.9% next year (covered 3.8 times).
Obviously, I’m coming to the party late. I can’t expect the share price to double again in the next 12 months. Expectations are high following the recent surge. There may be a bit of froth in the price today.
Progress also depends on the state of the global economy. A recession, particularly in the US, could squeeze infrastructure projects. Happily, Keller boasts a record £1.6bn order book.
With the stock valued at 10.48 times earnings, there does seem to be a safety net here. The price-to-sales ratio has soared lately, as this chart shows, but it’s still a relatively modest 0.4. That means I’m paying 40p for each £1 of sales it makes.
The shares are likely to prove a slow burner from here, but I’ll drill deeper into its accounts with the aim of buying Keller when I have the cash.
