Almost 100 years ago, German drilling business Johann Keller devised “vibro compaction” — using vibrations in deep holes to compact soil and boost its bearing capacity. The FTSE 250 construction engineering firm bearing the Keller name today has gone through myriad M&A deals — it started as the ground-engineering division of the UK’s GKN in the 1950s, before buying Johann Keller in 1975 and rebranding — but some of its 10,000 staff still deploy vibro compaction.
Keller laid 500 vibro concrete columns for the foundations of London’s Olympic Stadium. It also carried out metro tunnelling in Melbourne and worked on a deep sewerage system in Singapore. To potential investors, though, its success seems to have stayed underground: shares in the are down 10 per cent so far this year.
Part of the hit came from January’s admission that it had sacked two Australian workers over an “apparently deliberate and sophisticated” financial reporting fraud that led to profits in the region being overstated. But the stock has also lost a quarter of its value in the past five years, now trading at 762p. The price to earnings ratio for 2024 is just 6.5, against 8.1 last year. This seems at odds with macro conditions and Keller’s own performance.
The infrastructure and housing crisis means high demand for its engineering work, which helps turn brownfield sites into land ripe for development. Keller, meanwhile, reported record numbers at its half-year results at the start of August, with revenues up 6 per cent at £1.5 billion. In the US, which provides just over half of revenues, underlying operating profit more than doubled. That helped Keller both post higher margins and tell the markets that operating profit for the full year will be “materially ahead”. The firm inched up the half-year dividend by 5 per cent to 13.9p.
Keller’s order book now stands at £1.5 billion, almost a record, and more contracts are expected in the coming months, including a second deal on Saudi Arabia’s new.$500 billion city in the desert, Neom. Analysts also flag big opportunities in energy on LNG facilities and, possibly, UK nuclear.
Keller is now working in about 40 countries, and Joe Brent at broker Liberum puts the market for this type of engineering work at £38 billion, with Keller currently having an 8 per cent global market share. He sees the stock as “attractive” given its “strong cash generation, under-levered balance sheet and the wide array of opportunities on offer”. Keller’s underground work is ready for time in the sun: buy.
