07.03.2025
Next Tuesday morning, 11th March, will see the Costain Group (LON:COST), the UK infrastructure engineering business, declare its annual results for the year to end-December 2024.
We already know that the group’s revenues will show up slightly lower, while it will have increased its profits for the year.
The company, which is capitalised at £282m, which last year could have made £46.5m of profits, also had around £134m of cash in its group bank accounts.
What is more its shares, which are currently around 105p each, are trading on just 8.5 times historic and 7.4 times current year earnings, which equates to a very low rating.
With even better results expected this year and next, it appears to me that the group’s shares are ready to move a lot higher, possibly helped by some good news coming from the business next week.
The Business
Based in Maidenhead, the company traces its roots back to 1865.
Although the group’s corporate history includes extensive housebuilding and mining activities, it is now focused on civil engineering and commercial construction projects.
Today it is one of the UK’s leading construction and engineering companies, with its strategy of helping to improve people’s lives by creating connected, sustainable infrastructure that enables people and the planet to thrive.
Proudly it declares that it shapes, creates and delivers pioneering solutions that transform the performance of the infrastructure ecosystem across the UK’s transport, energy, water, and defence markets.
Six Main Operating Segments
The group operates in six main sectors – Rail, Defence and Nuclear Energy, Water, Integrated Transport, Road, and Energy.
Rail – it delivers end-to-end asset lifecycle solutions across the entire railway, from major station projects to multi-disciplinary rail projects.
Defence and Nuclear Energy – it supports the strategic defence capabilities and energy resilience that protect and power the UK, its people, values, and interests.
Water – it is a leading provider of engineering solutions to UK water utility companies across the asset lifecycle.
Integrated Transport – it works with diverse customers spanning Aviation, Light Rail and Place to transform organisational performance and accelerate the transition to net zero.
Road – it is a leading provider of end-to-end highway services, delivering technology-led solutions for its customers.
Energy – it supports the decarbonisation of the UK’s energy infrastructure by improving existing asset efficiency and life extension while leading the transition to a sustainable clean, green energy future.
The Late January Final Trading Update
On Monday 27th January this year, the group reported that its 2024 Trading Year to end-December had been positive, it actually stated that it had finished strongly, having grown in its strategic Water and Rail markets.
It guided the market that its adjusted operating profit for last year was expected to be in line with market expectations and that net cash at the end of the year will have shown through in line with market consensus.
Recent Contract News
Costain saw a substantial increase of £1.5bn in its high-quality forward work position to £5.4bn (£3.9bn) at the end of FY 24.
Together with growth on its existing frameworks and attractive levels of bidding activity, increased confidence in the group’s ability to deliver further growth in operating profits and margins.
As a sole supplier to deliver tunnel and lineside mechanical and electrical systems for HS2, the group has recently secured a total contract value worth a minimum of £400m.
Costain will deliver the design, supply, manufacture, installation, testing and commissioning of HS2’s Tunnel and Lineside M&E systems during construction.
This contract, which is to be signed in due course, for a seven-year period, with the option for additional contract extensions.
The Equity
There are 268.77m shares in issue.
The larger holders include JO Hambro Capital Management (10.14%), Ennismore Fund Management (6.94%), Gresham House Asset Management (5.59%), Artemis Investment Management (3.15%), Hargreaves Lansdown Asset Management (3.05%), FIL Investment Advisors (2.98%), KBI Global Investors (2.70%), BlackRock Investment Management (2.26%), and Amundi Asset Management (2.10%).
Analyst’s Views
Following the late January Trading Update, at Panmure Liberum its analysts Joe Brent and Joseph Walker rated the group’s shares as a Buy, with a 135p Target Price.
For the year to end-December 2024 they are looking for slightly lower revenues of £1,248m (£1,332m), but with higher adjusted pre-tax profits of £46.5m (£44.2m), which in turn generated earnings of 12.4p (11.9p), while maintaining its dividend of just 1.2p per share.
In 2025 they see £1,260m of revenues, a higher profit of £52.1m, boosted earnings of 14.3p and a fractionally higher dividend at 1.4p per share.
For 2026 the analysts are looking for £1,275m in sales, £56.7m profits,15.5p in earnings and a dividend per share of 1.6p.
In My View
This group’s £5.4bn Order Book gives tremendous confidence for the business going forward.
The analyst estimates for the group’s end-of-year cash balances are also important pointers, with £158.1m end-2024, for 2025 £189.4m, and for end-2026 a massive £220.8m in cash.
Having been up to 113p a few times within the last three months, the group’s shares now at 105p are looking primed and ready to rise again, with 130p/140p being a good Target Trading Range.
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