Broker tips: Kier, 3i Infrastructure

(Sharecast News) - Analysts at Berenberg lifted their target price for Kier on Wednesday, raising it from 300p to 370p, as they reiterated that the contractor's evolving strategy and clearer mediumterm framework were being well received by the market.

Berenberg said Kier's FY26 results showed a strong year, with revenues up 7.5% to £4.39bn and adjusted underlying earnings rising 6.7% to £169.8m, driven largely by a robust performance in infrastructure, where revenues grew 10% and margins reached 5.5%. Forward visibility remained high, with a record £11.9bn order book and more than 95% of FY27 revenue already secured.

The German bank highlighted Kier's decision to stop new investment in its property arm from FY27, redeploying capital to strengthen the balance sheet and focus on core infrastructure and construction activities. The existing £220m property portfolio will be built out and sold over the next three to four years.

Updated mediumterm targets include midsingledigit revenue growth, 4.0% to 4.5% operating margins, cash conversion above 90%, dividend cover of around 3x, average net cash above £200m by FY29, and doubledigit adjusted earnings per share growth.

Berenberg also pointed to Kier's improved capital position, with yearend net cash of £232.4m and average net cash of £10.7m, a sharp turnaround from FY25's average net debt.

It now assumes a recurring £25m annual buyback and full repayment of the 2029 9% bond in FY28, which could reduce annual interest costs from roughly £33m to £10m. Updated forecasts imply a 12% adjusted EPS compound annual growth rate from FY26 to FY29.

Berenberg added that Kier's valuation - 12.0x FY27 price-to-earnings, 5.8x underlying earnings and 8.0x EBIT - remained attractive given the improved clarity on strategy and delivery.

Canaccord Genuity upgraded 3i Infrastructure from 'sell' to 'hold' on Wednesday, saying the latest trading update pointed to solid progress in the first half and a strongerthanexpected outlook for net asset value.

The broker said 3i Infrastructure had delivered a "solid" six months, with most portfolio companies meeting or beating return expectations and the group indicating it remained on track to achieve its 4% to 5% target return for the period. With the interim dividend expected to contribute around 1.7%, Canaccord said this implied net asset value growth of at least 3.3%, putting the likely September NAV in the 418p to 420p range, up from 405p at the end of March.

Canaccord noted that 3i's balance sheet was described as "strong", with £267m of net cash and an undrawn £900m credit facility and said it saw scope for one or two new investments over the next six months, while any disposals were more likely ahead of the group's March yearend rather than before December. Income and nonincome cash generation was also robust at £195m, up from £121m a year earlier, helped by a £92m distribution from Joulz following a refinancing.

The Canadian bank said the shares, at 390p, were trading at a 4% discount to the March NAV and around 7% below the implied September figure. While not cheap, the broker noted the portfolio was performing well and saw no obvious downside risks to valuations from discountrate movements.

Canaccord added that while 3i Infrastructure had a strong longterm record, the portfolio remained concentrated and carried a high risk/high reward profile, with the top five assets accounting for around 70% of NAV. It said a discount of roughly 10% remained appropriate given that concentration.

Reporting by Iain Gilbert at Sharecast.com