Venture: Mid-Cap Engineering
Issue 11;
An undervalued good company.
Keller (KLR)
Keller says:
“At its simplest, we get ground ready to build on, providing solutions to geotechnical challenges across the entire construction sector. We have the people, expertise, experience and financial stability to respond quickly and see projects through safely and successfully.”
KLR was founded in 1860 and specialises in geotechnical engineering, which basically means the unglamorous part of civil engineering that lurks below the surface. It sits well within the undervalued group of UK small and mid-caps stocks. I picked up on the enterprise value-to-sales ratio, which is historically low, while long-term sales seem to grow steadily.
A Good Company that Is Undervalued
Consider the valuation from 10 years ago, which is about the same as it is today, yet sales have more than doubled. Share prices often move in 10 to 20-year “steps”, and I would think that when the economy improves, KLR will make a new high.
Keller Is Too Big to be this Cheap
KLR is a global business with 64% of projects in the USA. Sales are £3 billion per year; in a market they claim is worth £30 billion. Wherever you go in the developed world, you see crumbling infrastructure, which presumably will keep their 1,700 engineers busy for a long time. It’s a tech stock of the old school.
The profits slid over the pandemic, which is a common thread in Venture’s recommendations, but now they’re back. They recently reported record sales and profits with improved cash flow and a £1.5 billion order book.
The shares yield 4.7%, and they have grown the dividend for 28 years, which is impressive. The shares trade on 6.2 x ’24 earnings, and the analysts value them at 1247.5p, 51% above the current price. The earnings forecasts have been rising, which is reassuring in an uncertain economic environment.
The shareholder register is packed with value managers, as you would expect, and company insiders have been net buyers for nearly five years.
This is not particularly exciting or racy, but I see it as a bargain with a 50% upside in the short term and much more than that over a five-year period.
Risk
There are economic risks, and company-specific risks, that come with construction. The shares are reasonably liquid, averaging £800,000 per day, with volatility averaging 35%, which is low for a cyclical company. I deem KLR to be medium to high risk.
Venture Update
KLR joins COST in construction, which really is dirt cheap. I reiterate TIG, which has buybacks and upgrades. The gold miners have much to look forward to as gold flirts with a new all-time high.
Please let me know your thoughts by emailing me at charlie.morris@bytetree.com or tweeting me @AtlasPulse.
Many thanks,
Charlie Morris
Editor, Venture
Venture is issued by ByteTree Asset Management Ltd, an appointed representative of Strata Global which is authorised and regulated by the Financial Conduct Authority. ByteTree Asset Management is a wholly owned subsidiary of CryptoComposite Ltd.
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