Kier Group upbeat on British construction market

By Li-mei Hoang

LONDON, Feb 27 (Reuters) - Britain's Kier Group (LSE: KIE.L - news) said it was optimistic about a recovery in the construction market after its building division posted a 18 percent rise in revenues for the first half of its financial year.

The construction and property firm said on Thursday its order book across the overall group for its full year stood at a record level of 6 billion pounds ($9.98 billion), driven by a 25 percent increase in the construction business.

Britain's construction sector accounts for 6.3 percent of gross domestic product. Data this month showed construction output rose modestly in the fourth quarter of 2013, led by the greatest amount of new housing since the first quarter of 2008.

"I think all the indicators in the economy are that, the improvements that we see in workload ... are sticking and they are going to be there to benefit from in the next few years," Chief Executive Paul Sheffield told Reuters.

"An optimistic outlook I think for the next few years."

The company said its construction business secured 2.5 billion pounds worth of work for the year ahead, but Sheffield remained cautious.

"There will still be some pressure on the percentage profit margins," he said. "Volumes will rise but margins will be fairly static because there will be inflationary pressures just keeping that in check over the next couple of years," he said.

Kier, whose activities range from building power stations to providing outsourcing for local councils, posted a 90 percent jump in pre-tax profit for the first half of the year helped by its acquisition of road maintenance company May Gurney last year.

However shares in the company were down 2.5 percent to 1779 pence at 1249 GMT, compared with a 0.4 percent fall in the FTSE 250 index as concerns over Sheffield's departure in July, net debt and inflationary pressures weighed on investors.

"After a strong run, the shares may be at risk of a short-term pullback," said Liberum analysts in a note, adding the CEO's impending exit raised concerns about stability at the company.

"The majority of the stocks in the sector are down 1 percent-ish," Numis analyst Howard Seymour said, adding Kier's share price tended to be a little bit more volatile due to low liquidity.

Adjusted underlying pre-tax profit for the July-December period rose to 36.8 million pounds from 19.4 million pounds a year earlier.

Total (NYSE: TOT - news) revenue rose 47 percent to 1.43 billion pounds. Services revenue was up 167 percent at 563 million pounds, of which May Gurney added 338 million pounds.

The group said the performance of the May Gurney business was in line with its expectations. It also announced an interim dividend of 22.5 pence per share.