When a FTSE 250 share has soared 119% in a year I’d expect it to be expensive, but that isn’t the case with Keller Group (LSE: KLR). It’s currently trading on a relatively modest valuation of 10.47 times earnings.
That’s comfortably below today’s FTSE 250 average valuation of 12.4 times earnings. I’m always wary of buying stocks after a good run, but this suggests I could still have an opportunity to get in at a decent price.
Can the price keep climbing?
The geotechnical specialist contractor lays the foundations for construction projects across five continents, which gives it a pretty big market to tilt at.
Its shares rocketed after last month’s first-half results showed a 121% jump in statutory pre-tax profits to £95.3m. The share spiked on the day and has subsequently held on to its gains, which isn’t always the case.
First-half sales only rose 2% to £1.49bn but these things tend to come in fits and starts, depending on contract wins. Keller’s done well, given recent economic and certainty, but it’s not without risk.
It relies on governments and businesses green-lighting new infrastructure projects, but with the US and Chinese economies struggling (and deep in debt), the necessary capital may be in short supply.
Keller’s 2.96% yield’s modest but that’s purely down to the soaring share price. The board recently hiked its dividend per share 19% to 16.6p.
So is this now my favourite FTSE 250 share? Well, it’s coming up against some strong competition, in the shape of challenger bank OSB Group (LSE: OSB). This takes retail deposits through savings franchises Kent Reliance and Charter Savings Bank, and lends them to specialist mortgage sectors including buy-to-let, the self-employed and borrowers with adverse credit.
OSB Group offers me a mighty yield
Its shares are up 20% over 12 months, but have dipped 15% over the last three months. OSB’s a lot cheaper than Keller, trading at just 5.12 times trailing earnings. And the dividend doesn’t stand any comparison. OSB has a whopping trailing yield of 8.34%.
This isn’t unusual in the financial services sector right now, which has fallen out of favour during the last few turbulent years.
In another contrast to Keller, last month’s half-year results were poorly received by the market, despite statutory profit almost tripling to £241.3m. That number wasn’t as good as it first seems. OSB had booked one-off adverse movements the year before, which made it look better.
Crucially, the board cut net interest margins forecasts from 250 basis points to between 230 and 240 points. The mortgage market’s tough right now, as buyers await further base rate cuts and see what next month’s budget will bring. So it could be a bumpy few months for OSB.
That dirt cheap P/E and sky high yield really tempt me though. I’d like to buy both stocks today, but don’t have the cash. I’m plumping for Keller Group. I already have lots of exposure to FTSE financials. Infrastructure, not so much. Time to diversify. Now let’s hope the global economy springs into life, and the construction projects flow.
This post was originally published on Motley Fool
