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Kier Group (LSE:KIE) shares are up 102% over two years. But they plummeted 11% in early trading on 11 March after disappointing investors. As such, a £10,000 investment in the infrastructure and construction group two years ago would be worth around £20,500 now. That’s when dividends are accounted for. This is a very strong return on investment.
This FTSE 250 stock hasn’t really been on my radar in recent years. And while I don’t typically invest in companies that aren’t surpassing earnings expectations, I do find Kier Group to be an interesting proposition.
What half-year results told us
Kier Group’s shares fell 11% despite posting a rise in first-half profit and revenue, as well as lifting its dividend. For the six months to December 2024, adjusted pre-tax profit increased by 3% to £50.6m. Meanwhile revenue grew 5% to £1.98bn. The company highlighted solid growth in its infrastructure services and construction segments. Its order book reached a record £11bn, securing 98% of expected FY25 revenue.
Average month-end net debt dropped significantly to £37.6m from £136.5m the previous year, reflecting strong operational cash flow. Despite these positive results, investors responded cautiously, likely due to weaker-than-anticipated earnings combined with profit-taking after a strong run.
Kier’s CEO,Andrew Davies expressed confidence in the company’s ability to sustain cash generation and benefit from UK government infrastructure spending, but the share price decline suggests lingering uncertainty in the sector. This confidence also saw management raise the interim dividend by 20% to 2p per share.
Valuation is enticing
Kier Group’s current valuation has some attractive feature, with improving earnings per share (EPS) and a declining price-to-earnings (P/E) ratio. This signals enhanced profitability and relative value. The P/E ratio is projected to fall from 13.9 times in 2024 to 8.5 times in 2025, and then 7 times by 2027, reflecting strong earnings growth as EPS rises from 0.09p in 2024 to 0.19p in 2027.
The dividend yield stood at 3.9% for 2024, supported by a largely sustainable payout ratio of 50.3%. Dividends per share are expected to grow steadily, reaching 0.08p by 2027 with the payout ratio falling to 40%. Financially, Kier has strengthened its balance sheet, achieving net cash of £58m, bolstered by robust operational cash flow.
The bottom line
The UK’s economic outlook for 2025 remains subdued, with forecasts suggesting GDP growth of 1.3-1.7% amid persistent geopolitical risks and trade uncertainties. While a technical recession is unlikely, fears of a US downturn — driven by weakened consumer demand and tightening monetary policy — could spill over into global markets, exacerbating the UK’s fragile recovery.
Historically, governments have turned to infrastructure spending to stimulate growth during slowdowns, a strategy reinforced by Labour’s recent Budget, which relaxed fiscal rules to enable £100bn in capital investment over five years.
However, risks linger. The company’s heavy reliance on public-sector contracts leaves it exposed to potential delays in government spending or shifts in political priorities. Additionally, while infrastructure spending may cushion against domestic stagnation, Kier remains vulnerable to broader macroeconomic shocks, including inflationary pressures or a US-induced global recession that could derail fragile UK growth projections. It also appears to be very UK focused, having seemingly retreated from markets like the Middle East.
Personally, I’m keeping my powder dry, but I’ll be watching closely.
This story originally appeared on Motley Fool
