The £245m capitalised Costain Group (LON:COST) is due to announce its Interim Results tomorrow morning.
With some £700bn of infrastructure investment expected over next decade the group will continue its role as a major player in the sector.
It looks to shape, create and deliver pioneering solutions that transform the performance of the infrastructure ecosystem across the UK’s energy, water, transportation and defence markets.
Employing over 3,200 people across its business, the group engineers and delivers sustainable, efficient and practical solutions, utilising its unique mix of construction, consulting and digital experts.
Management Targets
Last year it reported a 10.5% increase in adjusted operating profits and strong net free cash flow.
Looking to its revenue and operating profit growth, it aims at an adjusted operating profit margin run rate of 3.5% during 2024, rising to 4.5% during 2025, and in excess of 5.0% thereafter.
Chair Kate Rock stated that:
“We are delivering well on our strategic objectives with an increase in our adjusted operating profit and margin.
We continue to build a pipeline of future opportunities for 2025 and beyond.”
Group Divisions
Transportation delivered a resilient performance in 2023 with rephasing and rescoping of contracts during the year – £943m sales.
Natural Resources saw revenue growth in the year together with positive margin improvement – £389m sales.
Recent Trading Update
In its mid-May AGM Trading Update the group noted that from the start of the year its trading for the period was in line with Board expectations and that the group continued to have a high-quality forward work position that aligns with its strategic plans for both the Transportation and Natural Resources divisions.
The average weekly net cash position from 1st January to 30th April 2024 was £168.8m (of which £60.4m was held in joint ventures).
The average weekly net cash position for the same period last year was £122.9m (of which £57.2m was held in joint ventures).
While the Board is mindful of the macro-economic backdrop, the group stated that it remained confident in its strategy and medium-to-long-term prospects.
Recent Contract Win
Late last week the group announced that its CMDP+ joint venture with MWH Treatment has been selected by Southern Water to shape and deliver its next strategic asset upgrade programme.
The award is for an initial seven-year term worth at least £500m to Costain, with an option to extend by up to five years.
The framework will deliver upgrades to water and wastewater assets, including treatment sites, pumping stations and reservoirs,
CEO Alex Vaughan stated that:
“This AMP8 announcement builds on our growing positions with the leading water companies as they prepare for a nationally important period of record investment.
This framework marks three decades of delivering industry leading essential solutions for Southern Water.
Through our successful joint venture with MWH Treatment, we will upgrade water and wastewater services for Southern Water and its customers, safeguarding the environment, and securing water supplies across the region; as well as creating new jobs and added social value.”
This contract extension adds to Costain’s growing positions with leading water companies, which include Anglian Water, Northumbrian Water Group, Severn Trent Water, Thames Water, United Utilities and Yorkshire Water.
The Equity
There are some 278.5m shares in issue.
The larger holders include ASGC Construction (14.96%), JO Hambro Capital Management (9.79%), Ennismore Fund Management (6.69%), Gresham House Asset Management (5.39%), Hargreaves Lansdown Asset Management (3.37%), Artemis Investment Management (3.04%), FIL Investment Advisors (UK) (2.85%), KBI Global Investors (2.61%), and Amundi Asset Management SA (2.03%).
Analyst View
There are four analysts following the company, rating the shares as a Buy, with an average consensus Price Objective of 95p, the highest view being 104p, and 80p for the lowest.
At Panmure Liberum, analyst Joe Brent, with colleagues Alex O’Hanlon and Sanjay Vidyarthi, rates the shares as a Buy looking for 100p a share as the Price Objective.
Their current year estimates to end-December are for £1,219m (£1,332m) sales, with pre-tax profits of £46.5m (£44.2m), generating earnings of 12.3p (11.9p) and maintaining its 1.2p dividend per share.
For 2025 the broker looks for £1,216m sales, £52.1m profits, 13.8p earnings and a 1.4p dividend.
Going forward into 2026 estimates are for sales of £1,243m, £56.7m profits, 14.9p earnings and a 1.5p dividend.
In My View
Costain Group shares, at 89p, are far too cheap considering that they are on just 7.24 times current year price-to-earnings, while the group should end the year with around £164m of cash on its balance sheet, compared to its current £245m capitalisation.