Could Kier Group go bust?

With job cuts, suspended dividends and Neil Woodford as an investor, is Kier Group plc (LON: KIE) going to last? Karl Loomes is not so sure.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With so much news-driven share price movement for the average stock these days, it is often easy to overlook the base financials of a company. To the uninitiated, a company’s financial report can be intimidating, and headlines about revenue or EBITDA can be the extent to which some investors look at the numbers. However one metric I like to use to gauge a company’s strength is known as the Altman Z-Score.

This calculation is effectively a credit-strength test that gives a listed company a number based on five key financial ratios. As a rule, anything above 3 is pretty solid, while anything below 1.8 is a riskier prospect. Of course the number needs to be taken in context, and should always be viewed in relation to a sector or industry average.

Below I have calculated the Z-Score for Kier Group (LSE: KIE), compared it to other builders including Barratt Developments and Taylor Wimpey, and the numbers leave a lot to be desired. These numbers are based on the companies’ 2018 full-year reports.

Should you invest £1,000 in Kier Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Kier Group Plc made the list?

See the 6 stocks

Ratio

Kier Group

Industry Average

Z-Score

1.77

3.31

Working Capital/Total Assets

-0.01

0.44

Retained Earnings/Total Assets

0.01

0.29

EBIT/Total Assets

0.04

0.1

Market Value of Equity/Total Liabilities

0.05

1.66

Revenue/Total Assets

1.61

1.03

The first thing worth noting is that as these numbers are based on the most recent full-year reports, they may, in many ways, lag the latest developments – if you will pardon the pun – in the financial outlook for Kier. That perhaps makes it all the more worrying as, even with this lag (not to mention what we now know to be somewhat questionable debt figures), Kier’s Z-Score still comes in well below the industry average, and below the key 1.8 mark of a company at risk.

It is fair to say that a good portion of this is due to the latest share price declines, which in turn have hit the total market value of its equity. However I also calculated the previous year’s Z-Score (before the shares got hammered) and the number only came in at 1.85 – hardly a massive vote of confidence. When I added the £40m ‘accountancy error’ to the latest figures, it edged the Z-Score down to 1.75.

Going forward, things could get worse.

The company admits that while its intended restructuring will save it about £55m a year from 2021, it will cost it £56m over the next two years to implement. To put it simply, it is going to suffer the costs at a time when when it cannot afford them, and only gain the benefit at a time when it may not even exist!

With the company’s increasing debt levels (and what was a failure to accurately communicate them to the market), many have compared Kier to the failed contractor Carillion. Looking at these numbers, I think that it is starting to look like a very real possibility that it will go the same way.

AI Revolution Awaits: Uncover Top Stock Picks for Massive Potential Gains!

Buckle up because we're about to dive headfirst into the electrifying world of AI.

Imagine this: you make a single savvy investment in some cutting-edge technology, then kick back and watch as it revolutionises entire industries and potentially even lines your pockets.

If the mere thought of riding this AI wave excites you and the prospect of massive potential returns gets your pulse racing, then you’ve got to check out this Motley Fool Share Advisor report – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And here’s the kicker – we’re giving you an exclusive peek at ONE of these top AI stock picks, absolutely free! How’s that for a bit of brilliance?

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Karl has no positions in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

UK investors are piling into Vodafone! Should I buy this FTSE 100 stock?

This ultra-cheap FTSE 100 dividend stock has been very popular among retail investors lately. What might they be seeing in…

Read more »

Market Movers

This FTSE 250 value stock is up 11% today! Here’s what’s going on

Jon Smith explains why a FTSE 250 stalwart is shooting higher today on fresh news and talks through why this…

Read more »

Inflation in newspapers
Investing Articles

£276bn worth of reasons to invest in UK shares?

Our writer prefers investing in UK shares to holding cash. However, he acknowledges that this approach does carry some risks.

Read more »

Investing Articles

Here’s the latest growth and share price forecasts for Nvidia stock

Nvidia is due to report Q4 results towards the end of February. Should I buy the stock in anticipation of…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Is the party over for the S&P 500 as Trump’s tariffs loom?

Donald Trump's planned tariffs have cast doubts on the future performance of the S&P 500. What should investors do now?

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett continues to invest in this well-known pizza company

Warren Buffett just bought another 1.1m shares in Domino’s Pizza. Should investors follow him into the well-known fast food company…

Read more »

Investing Articles

A £100 weekly income from a Stocks and Shares ISA? It’s possible!

Mark Hartley details how a combination of good stock picks and patience could transform a Stocks and Shares ISA into…

Read more »

Young black colleagues high-fiving each other at work
US Stock

Why Apple stock could be set to soar with the new Alibaba partnership

Jon Smith explains why a new deal relating to the Chinese market could be good news for Apple stock, not…

Read more »