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Kier is hardier than price suggests

The Times

In markets such as these it pays to follow the money. I suggested that the share price falls among the housebuilders after the referendum result became known looked out of all proportion to the potential damage it would do to the sector as a whole. A number of board members of various companies clearly agreed with me and went into the market and bought shares, scenting a bargain.

Yesterday Haydn Mursell, chief executive of Kier Group, bought shares in the company worth almost £50,000. He paid £10.70 a share; last Monday he probably could have got them for a tenner, but Mr Mursell was required under the rules governing such purchases to wait until yesterday’s trading statement.

The shares had been falling since the start of the year, mainly amid nerves about how much would be spent on UK infrastructure projects. They were off another 63p to 987p in yesterday’s difficult market.

There is no question that the Brexit vote throws up a number of uncertainties for Kier and other companies exposed to the UK economy. Understandably, not a lot of that is reflected in the trading statement to the end of June, the close of the company’s financial year. The bulls’ case is that Kier, which gets 95 per cent of its work in the UK, is heavily exposed to services, delivering 60 per cent of revenues. This is work fixing holes in the road and maintaining council housing and utililities infrastructure that will have to go on come what may.

The main news is that a couple of non-core operations are being sold or closed. The Caribbean has been a dificult market for years, countries such as Jamaica being too strapped for cash to spend on public projects; staff from there will be redeployed to the Middle East, where Kier gets work from Dubai and Abu Dhabi. The consulting business acquired along with Mouchel last year is being sold, probably at a profit. The argument is that if this wins work on a large project. the rest of Kier is precluded from bidding for the actual building work, which is more lucrative.

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The consultant had earnings of only £8 million in the last financial year, so the disposal will have little effect on finances. The shares sell on less than ten times’ earnings, so that fall looks overdone.

My advice Buy
Why Kier seems as resilient as any other in the sector to whatever is going to happen to the UK economy and the share price fall makes them look cheap

Clarkson
Part of the problem with Clarkson, one suspects, is that the shares are woefully under-researched. There is only one broker that covers them, Panmure Gordon, which is the house broker. Shipping is not a terribly easy subject to understand and that lack of coverage probably explains much of the market’s panic reaction to yesterday’s profit warning.

Panmure itself reckons that this is a question of recovery delayed and is shuffling its 2017 forecast forward to 2018. These are difficult times in shipping. The industry went into the financial crisis with too much capacity and this is taking longer than expected to work its way out, although yards are closing and ships are being taken out of service.

Clarkson is hit on two fronts. It gets a percentage of the freight it arranges and freight rates are running either at or close to their lowest ever. It gets a percentage of every ship bought or sold through its offices and values are low. The falling pound will be a benefit and this year will be the trough. Hopefully.

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The purchase of RS Platou, its Norwegian rival, last spring for £250 million still looks a good one, despite that company’s exposure to oil and gas, while the loan notes taken out to part-fund the deal will be paid off comfortably by next summer, when Clarkson can start to decide what to do with the surplus capital building up. Its shares, off 355p at £18.50, sell on 18 times’ earnings and the fall is overdone, but this does not quite look like the right time in the cycle to buy.
My advice
Avoid
Why Too early in the cycle to buy on recovery

Liontrust Asset Management
For a fund manager in these markets, building up assets under management can be a slow business. Liontrust has grown from £1 billion to just short of £5 billion over the past five years. A mandate that came into effect last Friday and the purchase of the European Income Business of Argonaut Capital Partners, due to complete at the end of this week, have brought in assets worth £283 million and will push the total to beyond that figure.

In the quarter to the end of June, though, net inflows stood at only £66 million, ahead of £10 million of negative market movements — not out of line with the previous quarter but reflecting the difficult state of the markets. There has been no obvious deterioration since the referendum.

Further growth by acquisition will have to wait until fund managers working elsewhere are prepared to make a move. Liontrust shares, off 9½p at 265½p, have not suffered the rout elsewhere in the sector. It has a good name, an effective distribution network and the long-term growth is there. On 11 times’ earnings, though, there does not seem too much immediate upside.

My advice Avoid
Why Most good news appears to be in the price

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And finally . . .
At some stage it will be time to consider which small oil and gas producers will do well enough out of an oil price that appears to have stabilised at about $50 a barrel. I am not sure if this is the time yet, but there is a trickle of good news from the sector. Aminex is a penny stock; its Kilwani North-1 well in Tanzania is producing about 5,000 barrels of oil a day, the company said yesterday. Aminex gets a fixed amount in dollars from the only customer. Shore Capital, the broker, has some punchy numbers out for 2017.

Follow me on Twitter for updates @MartinWaller10

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