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One FTSE 250 Index The stocks that are doing very well at the moment are industrial companies. Keller Group (LSE: KLR). Over the past year, it has increased by approximately 110%.
I still think the stock offers value though. It looks very cheap at the moment.
US Success
Keller specializes in preparing land for construction and is currently having a lot of success, especially in the United States.
In the United States, demand for Keller's services is high these days. This is because the country is spending a lot of money on infrastructure, offshoring, semiconductor plants and data centers.
Good results in the first half of the year
This success was reflected in Keller's recent results for the six-month period ended June 30. For the period, the company reported:
- Underlying profit growth of 69%
- Underlying return on capital employed of 28.4% – the highest level in 15 years
- Free cash flow growth before interest and taxes of 229%
- A 19% increase in dividend per share
The company also raised its full-year outlook, saying it expects group performance to be “materially ahead” than market expectations. It noted here that performance should be supported by its record order book of £1.6 billion.
Keller achieved outstanding results in the first half of the year, setting new records across the Group, as we continue to sustain and build on the significant progress in operational and financial performance achieved in 2023.
CEO Michael Speakman
Low rating
Since the results were released, City analysts have been increasing their profit forecasts for Keller. We may see further increases in the coming weeks and months.
However, at the moment, the consensus earnings per share forecast for 2024 is 183p. That means that, at the current share price of 1,610p, the forward price-to-earnings (P/E) ratio here is just 8.8.
This is a low valuation. For reference, the average price-earnings ratio on the FTSE 250 index is currently 13.4, so Keller is trading at a large discount to the index.
It is worth noting that analysts have been increasing their target prices for the stock recently. On 6 September, for example, Berenberg analysts raised their target price from 1,750 pence to 1,900 pence, i.e. 18% above the current share price.
Good dividend
Potential share price gains aren't the only draw for this stock, though. It also offers a pretty decent dividend. For 2023, the company paid out 45.2 pence per share in dividends. This year, it expects to increase its payout by 5%. That would bring the distribution up to 47.5 pence. At the current share price, that translates to a yield of just under 3%.
Is it worth checking out?
Now, it is worth noting that Keller operates in a cyclical industry and a downturn in the industry is a risk that cannot be ignored. Another risk is short-term profit-taking. After all, this stock has performed very well recently.
All in all, I think this stock has appeal. I think it's worth considering today, particularly for those looking to diversify away from investing in technology and into other areas of the market.
