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Stock of the week: Keller

Written by:
Graham Spooner, investment research analyst at The Share Centre, picks ground engineering specialist, Keller, as stock of the week.

Keller is a ground engineering specialist. It prepares the ground for projects and provides solutions to ground engineering problems across Europe, North America and Australia. Indeed, the company proclaims that every day, people around the world live, work and play on ground it has prepared, which should put the size of its operations in perspective for investors.

The group has a number of longer-term attractions, which position it well for the future. Due to land shortages across many countries and regions of the world, greenfield land is becoming increasingly difficult to build on, so development is increasingly focusing on brownfield sites, where Keller specialises. In addition, there is increased spending on flood defences due to climate change. At the same time, governments around the world continue to seek to support their economies through large scale infrastructure projects, including old and outdated road and rail infrastructure.

In its first half results, the company’s overall performance was better than expected despite a slowdown in construction activity in North America. This news wasn’t great, but contract wins during the first half have been strong and investors should recognise that this has resulted in record order book levels – they’re 20% ahead of the same period last year.

Keller is expanding its geographical reach and is looking to increase its presence in high growth emerging markets. A number of new initiatives should improve profitability by £50m by 2020.

The shares, which rose in late September on the back of comments from politicians regarding building, trade at around 10.3x forward earnings and we feel that they currently look attractive for investors looking for a mixture of capital growth and income while willing to accept a medium level of risk.

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