Costain Group – after these Interims investors should be ‘filling their boots’, shares 139p, brokers TP raised to 190p

Mark Watson-Mitchell
Aug 20
4 min read

20.08.2025

Despite a first-half reduction in its Transportation business, this infrastructure group enjoyed an uplift in its Natural Resources division.

For the six months to end-June Costain Group (LON:COST) reported overall revenues of £525.4m, down from £639.3m, however an increase in its adjusted operating profit saw £16.8m against £16.3m previously, with its operating margin greatly improved to 3.2% from 2.5%.

What is more, the group has stated that it is confident of delivering its run-rate target of 4.5% during the current year.

Reflecting a reduction in its adjusting items as part of its Transformation programme, the group has shown an 18% increase in its reported operating profit to £16.4m (£13.9m).

Interim adjusted earnings came out at 5.5p (5.6p) per share, while the first-half dividend was increased from 0.4p to 1.0p per share.

The group declared that it has an even higher forward work position of £5.6bn against the first-half 2024 rate of £4.3bn, while it ended 2024 with an Order Book of £5.4bn.

The business expects to end the current year with net cash of £170m (£158.5m).

Management Comment

CEO Alex Vaughan stated that:

"We have delivered another strong performance in the first half of 2025.

Growth in adjusted operating profit and margin reflects the improving quality of our contract portfolio, and we remain confident that we will deliver our adjusted operating margin run-rate target of 4.5% during FY 25, building on the significant growth in adjusted operating profit achieved since FY 21.

Our strong net cash position, progression in our dividend and share buyback programme are creating substantial value for shareholders.

We continue to win new work and add new customers in growth markets that provide essential infrastructure, expanding our forward work position to £5.6bn, more than four times FY 24 revenue.

We have already secured 90% of our forecast revenue for the year and our bidding activity levels remain high.

The Government's new Infrastructure Strategy and Infrastructure Pipeline, together with recent regulatory determinations in water, energy and aviation, provide clarity and confidence in the significant growth opportunities in our target markets.

We are delivering our strategic priorities, investing in the business to support these attractive growth opportunities and are increasingly confident in the Group's growth prospects."

The Business

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

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

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

It is focused on four strategic markets in the United Kingdom: 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.

The sectors it operates in are rail, integrated transport, road, water, aviation, and defence and nuclear energy.

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.

The group’s 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.

Brokers Views

At Panmure Liberum, its analysts Joe Brent and Joe Walker, have upped their Target Price on the group’s shares from 170p to 190p.

Upon the announcement, the analysts have confirmed and reiterated their estimates for the 2025 year of group sales of £1,109m (£1,251m), with pre-tax profits of £52.1m (£48.5m), with earnings steady at 14.4p, but with an increased dividend to 3.0p (2.4p) per share.

For next year, they go for £1,275m sales, £56.4m profits,15.9p earnings and a 3.1p per share dividend.

Looking further ahead into 2027, they see £1,402m sales, £53.0m profits, 17.7p earnings and a 3.2p dividend.

The strength of the £435.6m-capitalised group’s balance sheet is identified by the broker’s end-year net cash positions of £172.6m in 2025, £196.3m at end 2026 and then up to £219.1m by end-2027.

My View

Now that the group’s £10m share buyback programme is completed, the market will have to decide whether that proved to be merely a prop for its share price or whether it was a useful and strategic expenditure of company cash.

At least it was not based upon group borrowings, like the majority of share buybacks today, so it ends up being a legitimate Management tool.

The market could well take the view that the easing of the group’s Transportation business points to a form of corporate weakness – but I totally disagree because the very spread of Costain’s business is to its advantage in balancing the effects.

The group’s shares have opened nearly 15% lower at 139p, at which level investors should be ‘filling their boots’.