Keller Group (LSE:KLR) has surged 18% over 12 months and 126% over two years. Such a success story isn’t that common among small-cap UK stocks, especially since the pandemic. But while it’s a small-cap stock, it’s a big player in its field.

Positive trajectory

As the world’s largest geotechnical specialist contractor, Keller has a unique position in the construction value chain — getting the ground ready for major infrastructure, industrial, and commercial projects. This positioning has allowed it to deliver consistent growth and resilience even as many UK small-caps have struggled to maintain momentum.

Earnings have grown significantly in recent years, with statutory profit after tax soaring 59% in 2024, for example. Another highlight from the 2024 results was the near-doubling of free cash flow to £192.6m as underlying operating margin rose 100 basis points to 7.1%.

A strong balance sheet

This operational strength is mirrored in Keller’s balance sheet. Net debt plummeted from £237.3m in 2023 to just £29.5m in 2024, with net debt-to-EBITDA leverage at a conservative 0.1x. Looking ahead, net debt is forecast to turn into net cash by 2027. The forecasts show a net cash position of £62.5m in 2027, but I believe this is too conservative. Either way, the strong balance sheet further de-risks the investment case, I feel.

Building on this, valuation metrics suggest Keller remains attractively priced. The forward price-to-earnings (P/E) ratio stands at 8.3 times for 2025, dropping to 7.9 times in 2026 and 7.6 times in 2027. That’s well below market averages for a business with Keller’s record and prospects.

The EV-to-EBITDA multiple is similarly modest, at 3.6 times for 2025 and trending down to three times by 2027. This multiple reflecting both earnings growth and deleveraging.

Meanwhile, dividend growth is decent. Dividends per share are projected to rise from 49.7p in 2024 to 58.5p by 2027. The yield increasing from 3.4% in 2025 to 3.7% in 2027 while coverage remaining strong. The payout ratio hovers around 27%-28% throughout the period. That indicates sustainability.

The bottom line

Keller’s long-term value creation is underpinned by structural growth drivers. Global demand for infrastructure renewal, urbanisation, and climate-resilient construction supports a healthy pipeline. The company’s exposure to sectors like power and industrial (27% of revenue) and infrastructure (33%) positions it well for secular trends. This includes the surge in data centre construction and the associated energy infrastructure.

However, investors must remain mindful of risks. The 2024 annual report highlights macroeconomic uncertainty, including the potential impact of US fiscal policy, such as Trump-era tariffs and spending bills. Broader economic slowdowns, inflationary pressures, and geopolitical tensions could also affect project pipelines and margins.

Nonetheless, I rather like Keller Group’s value proposition. It’s valuation in undemanding even though it operates in a typically cyclical sector and its balance sheet is strong. It’s a stock I’m going to watch very closely and I’d suggest other investors do so too. I believe there’s some evidence it could slowly push higher over the coming years.