RBC Capital Markets starts Keller Group with “sector perform” rating, 1,540p PT

Published 10/10/2025, 09:14
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Investing.com -- RBC Capital Markets initiated coverage of Keller Group Plc (LON:KLR), the global geotechnical engineering contractor, with a “sector perform” rating and set a price target of 1,540p. 

The broker said Keller, which operates across 70-80 local markets and specializes in complex ground engineering projects, has executed well since 2019. 

Operational discipline and strategic regional exits have boosted group adjusted EBIT margins to more than 7%, compared with a roughly 5.3% 10-year average. 

RBC said margins appear to be approaching a structural ceiling and expects them to hold at 7.2% until CY27e, in line with consensus.

The report noted Keller’s competitive edge in complex projects but said pricing power is limited given its “non-hard IP” business model. 

RBC also flagged potential cost pressures from an ageing equipment fleet. While maintaining current margins would be a positive outcome, RBC said Keller must prove it can sustain operational discipline against a history of volatility.

Revenue has become Keller’s core earnings driver, with North America accounting for about 80% of group earnings. 

RBC said Keller’s results have tracked U.S. construction spend with an 81% correlation since 2006, making the outlook for U.S. construction critical. 

The broker described the near-term outlook for U.S. construction as mixed, translating into consensus adjusted EBITDA growth of 1.4% in CY25, 3.7% in CY26, and 3% in CY27, lagging U.S.-construction-exposed peers at -2.4% in CY25 and 7.4% in both CY26 and CY27 (median).

With the recent appointment of James Wroath as CEO, RBC said a capital markets day would be important for Keller to outline a clear growth strategy and margin sustainability plan. Without such clarity, RBC said investors are likely to remain cautious.

RBC noted Keller could have a potential £460 million “war chest” by CY27e, assuming zero leverage, equivalent to about 50% of its market capitalization. 

Deploying 75% of this to acquisitions and 25% to share buybacks could result in a 12% adjusted EPS accretion by CY27e. 

RBC noted Keller’s M&A track record is limited, and said the company would need to integrate between 10 and 40 bolt-on acquisitions to achieve material growth.

RBC added that Keller’s valuation reflects low earnings growth and limited growth visibility. 

Its 1,540p price target is based on a 7x CY26e P/E multiple, compared with the company’s 10-year average of 8.2x. 

The broker said the discount reflects the mixed outlook for U.S. construction and limited margin upside.

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