Short-selling hedge funds that targeted failed Carillion have turned their attention to another major UK contractor, Kier Group Plc, it was reported this week.
Short sellers make money from potentially vulnerable listed firms by borrowing shares to sell at a relatively high price now, in the hope of buying them back if the share price falls later, thus netting a financial gain.
Because of the success they’ve had with Carillion, they are looking for the same pitfalls and characteristics– Kevin Cammack, Cenkos Securities’ analyst
According to Bloomberg, some of the same hedge funds that took aim at Carillion long before its collapse this January are now targeting £4.2bn-turnover Kier, which has had a number of difficulties this year, including a blaze at the Glasgow School of Art and delays at the Broadmoor hospital redevelopment.
Short-sell bets against Kier Group Plc reached a four-year high last month, according to data compiled by IHS Markit Ltd., Bloomberg reports. The total short position in Kier reached 10.9% as of 30 August.
Carillion short sellers BlackRock Inc., Marshall Wace, Och-Ziff Capital Management and Kuvari Partners LLP, are now shorting Kier, said Bloomberg. These firms declined to comment on positions taken in Kier.
"One assumes because of the success they’ve had with Carillion, they are looking for the samepitfalls and characteristics," Kevin Cammack, an analyst at Cenkos Securities Ltd., told Bloomberg.
Cammack added that "there are one or two things that will take time for Kier to convince people that fundamentally it is a decently enough run business". His rating on the stock was "hold" as of 3 September.
Bloomberg said Kier declined to comment on the short-selling, pointing instead to remarks made by chief executive Haydn Mursell during a January conference call after the Carillion collapse, in which he described his company’s approach to risk management in favourable terms.
Mursell said at the time that Kier’s average project size is "very modest," between £5m and £10m, with an average duration of less than 12 months.
Over £50m, Kier seeks cost-plus arrangements to lower risk, Mursell said, adding that two-thirds of its construction work is delivered for repeat customers with longstanding relationships to the company.
"It’s a great collaborative approach, and of course that goes to further mitigate the risk on the contracts," Mursell said at the time.
Kier has had difficulties this year, however.
Its £25m contract to restore the Glasgow School of Art’s Mackintosh building was terminated in June following the devastating fire that month.
And last month it emerged that residents who live near the site are mulling legal action against Kier, the local authority and the project’s client.
Also in August it was reported that the health services trust overseeing the £242m redevelopment of Broadmoor hospital in Berkshire by Kier had expressed concern over delays and rising costs on that project.
In a trading update for the year to June, the firm said average month-end net debt had risen to £375m, citing workloads hit by bad winter weather.
Bloomberg noted that Kier operates the same supply-chain finance system Carillion used, through which subcontractors can sign up to be paid earlier than the main contractor’s payment terms if they accept a discounted payment.
In their investigation into Carillion, MPs cited this practice as one of the "aggressive accounting tricks" the company used to make its financial position seem stronger than it was.
In June Kier launched a new efficiency and streamlining programme, called "Future Proofing Kier", which aims at improving the firm’s productivity, exiting non-core operations, and boosting margins and cash generation.
The company said material benefits of this effort would be start to be realised in the year ending 30 June 2020.
Kier continues to win projects, however, including, in the last 30 days, a new health research facility for the London School of Hygiene & Tropical Medicine, a £39m regional distribution hub facility in Bedford for developers UK Land and Property, and a £36m redevelopment of the former pathology and residential staff quarters at St Bartholomew’s Hospital in London.
Image by Mohamed Ahmed Soliman/Dreamstime
I wasn’t aware of the share betting on Carillion and to read that Kier are being targeted concerns me. Kier’s share price has dipped drastically over the last 2ys, with a their share-save scheme for employees being affected as no interest is paid on the savings element with reliance on the shares value. Last year was £1.50+ less than the agreed purchase price and this year will be about £2.50 less – so most employees will not buy Kier shares. 4yrs ago, the price was £15.40 vs £9.00 today!
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