Kier Group upgraded to ’BB+’ by S&P on strong financial performance

Investing.com -- S&P Global Ratings has upgraded U.K.-based engineering and construction group Kier Group to ’BB+’ from ’BB’, citing strong operational performance and improved financial metrics. The outlook is stable.

The rating agency noted that Kier reported revenue growth of 4.4% and orderbook growth of 1.9% in fiscal 2025, driven by ongoing work on the High Speed 2 rail network and expansion in the water and nuclear sectors.

S&P highlighted that Kier’s adjusted EBITDA margins improved by 30 basis points to 5.2%, benefiting from lower one-time cash costs and management’s cost reduction initiatives, which more than offset inflation pressures. As a result, the company’s funds from operations (FFO) to debt ratio increased to 99% in fiscal 2025 from 74% in fiscal 2024.

Cash generation remained robust despite lower working capital inflow and higher debt servicing. The company’s operating cash flow (OCF) to debt ratio improved to 113% in fiscal 2025 from 93% the previous year, primarily due to lower adjusted debt as Kier works toward achieving a sustainable average month-end net cash position by the end of fiscal 2027.

The combination of higher earnings and strong cash generation allowed Kier to reduce its S&P-adjusted debt to £172 million in fiscal 2025 from £213 million in fiscal 2024.

S&P expects Kier to maintain credit metrics appropriate for the higher rating, supported by an order backlog of £11.0 billion as of June 30, 2025, which covers more than 80% of S&P’s revenue forecast for 2026-2028. About 90% of Kier’s fiscal 2026 revenue is already secured.

The rating agency forecasts revenue growth of 5%-10% in 2026-2027, with EBITDA growing to over £220 million by fiscal 2028. This growth will be driven by opportunities in the water sector’s new investment period (AMP8), transportation business expansion, and the construction segment, which benefits from U.K. government spending in defense, education, healthcare, and justice projects.

During its capital markets day in June, Kier reaffirmed its target of gradually achieving an average month-end net cash position, compared with average net debt of £49 million at month-end in fiscal 2025. S&P forecasts the company will generate positive discretionary cash flow of over £80 million annually between fiscal 2026 and fiscal 2028, and will meet its average month-end net cash target by the end of 2026, ahead of its fiscal 2027 target.

S&P noted that Kier’s narrow geographic diversity and modest scale constrain further rating upside in the near term. The group generated revenue of about £4.1 billion in fiscal 2025 and adjusted EBITDA of about £213 million. While S&P projects sales will increase to £4.5 billion-£4.7 billion over time, this remains modest compared to similar or higher-rated peers.

The stable outlook reflects S&P’s expectation that Kier will maintain FFO to debt higher than 60% and OCF to debt exceeding 50% on average, while adhering to a financial policy that supports the higher rating.

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