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Investing.com -- Fitch Ratings has revised Kier Group Plc’s outlook to positive from stable while affirming its Long-Term Issuer Default Rating at ’BB+’.
The outlook change reflects Fitch’s expectation that Kier’s EBITDA gross leverage will decrease to 1.3x-1.4x between FY27 and FY29 (year-end June), down from 1.5x at FYE26. This improvement will primarily come from continued EBITDA growth due to increased order execution, with no increase in gross debt.
Fitch also expects Kier to generate positive free cash flow across FY26-FY29, supporting the outlook revision.
The rating reflects Kier’s disciplined bidding approach with strong pass-through mechanisms, solid revenue visibility, and established market position as a leading engineering and construction company in the UK.
Kier’s order book increased to £11 billion at FYE25, up from £10.8 billion at FYE24, driven by new orders from infrastructure and construction sectors. The company is well-positioned to benefit from continued government investments in these areas.
Approximately 60% of Kier’s order book consists of cost-plus or target-cost contracts with pass-through clauses, supporting margin stability. Most remaining contracts include a two-stage negotiation process, allowing the company to share project risk and price contracts accordingly during inflationary periods.
Fitch forecasts Kier’s revenue to grow 3.5%-4.5% annually across FY26-FY29, with stable EBITDA margins of about 4%-4.2%. The company plans to use excess cash to expand its property portfolio, with Fitch forecasting cumulative net cash outflows of about £46 million over FY26-FY29 for these investments.
The rating agency expects Kier’s property business to start delivering a 13%-16% return on capital employed from FY28.
Kier’s rating is constrained by its geographical concentration in the UK, though this risk is mitigated by strong presence across various framework agreements and subsector diversification.
For a rating upgrade, Kier would need to maintain EBITDA leverage below 1.5x on a sustained basis, improve the quality and diversification of dividend income streams, and achieve EBITDA margins above 3.5% with low single-digit FCF margins consistently.
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