Costain Group – after the recent sell-off, BlackRock SmallCap fund manager rates the shares, trading on 9.8 times earnings, now 141.20p, brokers TP 190p

Mark Watson-Mitchell - 06.10.2025

A week ago, it was reported that fund manager Roland Arnold reckoned that the recent price fall in the shares of the Costain Group (LON:COST), my favourite infrastructure business, was ‘an overreaction’, having fallen from 166.80p on the day of its latest results, down to 124.40p three weeks later.

Institutional Investor Comment

Roland Arnold, boss of the £660m BlackRock Smaller Companies Fund (LON:BRSC), stated that:

“The decline was attributable to a reduction in transportation as a result of expected road project completions and delays in some major infrastructure contracts, including a rephased schedule from HS2.

We believe the sell-off in the shares was an overreaction, given the government’s infrastructure commitments and regulation in water and energy driving investment, which should underpin the group’s future growth prospects.”

However, it was noted that the Interim pre-tax profit was up 7.1% and that the interim dividend was more than doubled.

The Business

Costain helps to shape, create and deliver pioneering solutions that transform the performance of the infrastructure ecosystem.

It offers various services, such as consultancy and advisory, digital technology solutions, and complex programme delivery.

The company, which offers that range of services across the whole lifecycle of its customers' assets, operates through two segments: Natural Resources and Transportation.

It focusses upon four strategic markets in the UK: transport, water, energy, and defence.

The business is involved in research and development in its highways, integrated transport, aviation, energy, defence, water, and rail sectors.

Its energy services include energy transition, oil and gas, electricity and gas networks, and industrial cooling.

Outlook

The group noted that following the greater clarity provided by the Government's commitments in its recent 10-year Infrastructure Strategy and Infrastructure Pipeline, together with the significant increase in committed regulatory investment in key sectors of water, energy and aviation, there is real momentum in Costain’s chosen markets of Transport, Water, Energy, and Defence and Nuclear Energy.

Its Management remains mindful of the near term macro-economic and geopolitical environment and the potential consequences of government spend phasing decisions, the improvements in market outlook and its positioning and resilience underpin its confidence in delivering on its expectations for further progress in FY 25 and FY 26, with a step change in performance expected in FY 27 and beyond.

Analyst’s View

After the latest Update, analysts Joe Brent and Joe Walker, at Panmure Liberum, upped their Target Price for the group’s shares to 190p (170p).

They confirmed and reiterated their estimates for the 2025 year for lower group sales of £1,109m (£1,251m), but with higher pre-tax profits of £52.1m (£48.5m), while earnings could hold steady at 14.4p per share, as well as increasing the dividend to 3.0p (2.4p) per share.

Their estimates for the 2026 year look for £1,275m in sales, with £56.4m profits,

generating 15.9p in earnings and paying out a 3.1p dividend per share.

For 2027, they look for £1,402m group sales, slightly lower profits at £53.0m, but with 17.7p in earnings and a 3.2p per share dividend.

It is well worth noting the strength of the £376m-capitalised group’s balance sheet, which is identified by the broker’s end-year net cash positions of £172.6m in 2025, £196.3m at end-2026 and then some £219.1m by end-2027.

In My View

In early August, ahead of the Interim Results, the group completed its Share Buy-Back programme – I was undecided where the shares would go in price with that ‘prop’ taken away.

They had touched 172.40p a week before the results.

They then fell to 132p on the statement, before drifting off to that 124.40p low.

They enjoyed a very encouraging bout of trading towards the end of last month, since when they have lifted to 141.20p.

At that level, I still rate the shares as being under-rated, trading on a mere 9.8 times current year and just 8.9 times prospective earnings.

They are very capable of climbing back through that 172.40p level and possibly through the analyst’s Target Price, hopefully boosted by some fresh pieces of contract and corporate news.

(Profile 05.09.19 @ 155p set a Target Price of 250p)

(Profile 02.08.21 @ 55p set a Target Price of 69p*)

(Profile 24.08.23 @ 50p set a Target Price of 62p*)

(Profile 20.08.25 @ 139p set a target Price of 175p)

Asterisks * denote that Target Prices have been achieved since Profile publication.