Heavy construction specialist Kier (KIE) remains on course to deliver full year 2014 expectations and forward visibility on 2015 earnings already looks encouraging. These were the main takeaways from the heavy construction specialist's trading update and they went down well with investors with the shares adding 3.5% to £18.46.

All very reassuring for a stock we featured in our Plays section on 22 May at £16.38.

Today's update is seen as a prelude to the group's capital market day scheduled for tomorrow (3 July). Investec's Andrew Gibb believes Kier is likely to unveil a strategy for future profits growth, targeting double-digit compound annual growth for the period to 2020.


Earnings visibility for 2015 in its construction and services divisions is encouraging. With 90% of budgeted workload for next year in construction the theory is that the UK construction recovery narrative is gaining credence, despite wafer thin 2% operating margins.

Visibility in services is only marginally less helpful and the division has secured 85% of its forecast revenue for 2015 while operating margins for the full-year 2014 are forecast to exceed 4.5%. The property division meanwhile continues to achieve 15% return on capital employed (ROCE).

Investec remain fans with the caveat that 'whilst the valuation does not necessarily leap off the page, this clearly does not capture the significant asset base,' Gibb says. The forward price/earnings (PE) multiple stands at 14.4. However, Gibb concludes that 'if Kier can double profits over the next five years, this is a cheap share,' before reiterating his Buy recommendation and £19.55p sum-of-the-parts (SOTP) target price.

Issue Date: 02 Jul 2014