January 25, 2018 / 9:50 AM / a year ago

Shares of construction firm Kier rise 13 percent on upbeat trading, debt outlook

(Reuters) - Shares of Kier Group (KIE.L) rose more than 13 percent on Thursday after the British construction and support services company reiterated it would deliver double-digit growth in 2018.

Kier, whose activities range from building power stations to outsourcing work for local councils, also said it expects net debt to be lower over the next two years. The rosier outlook comes as rival Carillion buckled under a huge debt load.

Kier said it expects about 30 million pounds stronger cash generation after this year on lower costs for investments.

Shares of the company rose as much as 14 percent and were on track for their best single-day gains in over nine years, as markets cheered the strengthening of cash flow. They were up 12.7 percent at 1080p at 0913 GMT.

Kier’s London-listed peers such as Capita (CPI.L), Mitie (MTO.L) and Interserve (IRV.L) have all reported tougher trading conditions in the UK since the June 2016 Brexit referendum, with unplanned changes escalating costs on past contracts.

“We expect net debt to EBITDA to be less than 1x at June 30, 2018 and for the group’s year-end and average net debt position to reduce over the period to 2020”, the company said in a statement.

The lower debt prediction comes weeks after the collapse of its British construction and outsourcing peer Carillion (CLLN.L), which was crippled by at least 2.2 billion pounds in debt and pension liabilities.

“From full-year 2018 we expect average debt to reduce at about 40 million pounds per annum without eroding the group’s earning power,” Peel Hunt analyst Andrew Nussey said. The brokerage has a “buy” rating on the stock.

Kier said its combined construction and services order book remained strong at about 9.5 billion pounds as of Dec. 31, 2017.

Liberum analysts, in a client note, said that reduced investment and better cash flow should be well received by the market.

Carillion went bankrupt on Jan. 15 after costly contract delays and a slump in new business left it swamped with debt and pension liabilities.

Kier, which partnered with Carillion and Eiffage (FOUG.PA) on a contract to build Britain’s High Speed 2 railway, said last week it would partner with Eiffage for the remainder of the project.

Reporting By Justin George Varghese in Bengaluru; Editing by Bernard Orr

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