Research Update: U.K.-Based Engineering And Construction Group Kier Upgraded To 'BB' On Solid Performance And Cash Flow; Outlook Positive

Kier Group's credit metrics improved significantly in fiscal year ended June 30, 2024 (fiscal 2024), owing to 15.5% revenue growth, broadly stable adjusted EBITDA margins, strong cash generation, and debt reduction, with adjusted funds from operation (FFO) to debt increasing to 74% from 41% in fiscal 2023. We believe Kier can maintain these credit ratios, thanks to its solid order backlog and commitment to reducing net debt, and we assume FFO to debt will normalize but remain at about 60% in 2025-2026, the higher end of our 45%-60% range for the 'BB' rating, with adjusted operating cash flow (OCF) to debt staying at 35%-50% over that period. We therefore raised our ratings on Kier and its outstanding £250 million senior

...- Kier Group's credit metrics improved significantly in fiscal year ended June 30, 2024 (fiscal 2024), owing to 15.5% revenue growth, broadly stable adjusted EBITDA margins, strong cash generation, and debt reduction, with adjusted funds from operation (FFO) to debt increasing to 74% from 41% in fiscal 2023. - We believe Kier can maintain these credit ratios, thanks to its solid order backlog and commitment to reducing net debt, and we assume FFO to debt will normalize but remain at about 60% in 2025-2026, the higher end of our 45%-60% range for the '##' rating, with adjusted operating cash flow (OCF) to debt staying at 35%-50% over that period. - We therefore raised our ratings on Kier and its outstanding ú250 million senior unsecured notes to '##' from '##-'. The recovery rating on the debt remains unchanged at '3', indicating our expectation of about 60% recovery (rounded estimate) in the event of a default. - The positive outlook reflects the potential for a further upgrade within the...

Research Update