Kier

“Rather than the traditional Santa rally, equities are enduring a Santa rout. A rate hike was widely expected when the US Federal Reserve met last night but the extremely negative market reaction reflects what was said alongside the decision by Fed chief Jerome Powell. Powell delivered a bit of a double whammy, flagging lots of worrying risks to the economy but still committing to two further rate increases in 2019. The scale of the response reflects just how fragile investor confidence is – after all, Powell did effectively reduce guidance from three rate hikes to just a couple next year. US rates have such a widespread and profound impact globally thanks to the country’s status as world’s largest economy and because many currencies, particularly in the developing world, are tied to the US dollar. Many emerging markets also hold a lot of their debt in dollars. After big declines in Asia overnight, just a handful of stocks on the FTSE 100 were in positive territory this morning with mining firms, energy shares and industrial stocks all enduring significant pain. Copper miner Antofagasta was notably down more than 4% and the FTSE 100 hit its lowest point in more than two years. For many in the financial markets, Powell is firmly on the naughty list this Christmas,” says Russ Mould, Investment Director at AJ Bell.

Kier

“The fact Kier has only secured 37.6% of support for its £264m rights shows how little faith shareholders have in the business. This low level of acceptance is a huge embarrassment for the management who probably thought they were being proactive with raising money before more serious questions were asked about the strength of its balance sheet.

“While Kier still gets the full amount of money because the rights issue was fully underwritten by five banks and brokers, its credibility will remain in tatters because of the poor take-up by shareholders. If your investors can’t back you in times of need, when can you count on them?

“You can perhaps understand why Kier is one of the most shorted stocks on the market. It has been targeted by people betting on a decline in its share price because of high debt levels and exposure to an industry beset by contract delays and cost overruns. These same issues also applied to Carillion which went bust earlier this year.

“Kier follows the same model as Carillion in using supply chain finance, whereby suppliers sell their invoices to a bank at a discount and effectively get paid immediately. The bank then collects from Kier later on. This boosts its working capital in the short-term but arguably obscures the true state of its balance sheet.

“A key reason for Kier undertaking the rights issue was to have money at the end of December as customers’ pre-qualification metrics are becoming more stringent and are often based around a year-end cash balance.”

These articles are for information purposes only and are not a personal recommendation or advice.