Bottom Line: Keller questions

THE PRICING of Keller at a 12 per cent discount to the stock market as a whole rather than relative to the construction sector is a measure of the difficulty the City is likely to have in valuing the ground engineering specialist when it comes to the market next month.

That is partly because its niche, sorting out groundwork problems for other contractors, does not track the construction cycle faithfully. It also reflects the fact that 80 per cent of the business is overseas and therefore marching to a different beat.

Keller has a good track record, having grown operating profits from pounds 4.2m on pounds 87m of turnover in 1988 to pounds 9.2m from pounds 148m last year. It has benefited from its exposure to a still-booming building industry in Germany, which accounts for two-thirds of profits, and to US recovery.

The order book is strong, it has a leading position in its markets and a wide customer base and produces lots of cash. But there is a question mark over Germany and lack of exposure to the Far East.

The house broker, Kleinwort Benson, thinks pre-tax profits will rise from pounds 8m to a pro forma pounds 9m this year. That gives a prospective p/e of 14 at the flotation price of 130p, valuing the company at pounds 73m and suggesting that the management has cashed in on the best of the growth.