Costain Group - better than expected Trading Update, "simply too cheap" shares 161p, brokers TP 215p

Mark Watson-Mitchell - 26.01.2026

"Given the strong market environment, substantial contract wins, the continued expansion of existing framework contracts and high levels of bidding activity, the Group remains confident of further progress in FY 26 and a step change in performance in FY 27 and beyond."

This morning's Trading Update from infrastructure specialists, the Costain Group (LON:COST) was far more positive than market expectations.

Its shares are now sure to rise far higher than last Friday night's close of 161p, while a break above the previous 172.50p High is anticipated.

Importantly, the £430m-capitalised company announced a new pension scheme agreement, removing the dividend parity arrangement and eliminating future cash contributions to the scheme until January 2031.

That news, combined with strong FY 25 trading results, including adjusted operating profit in line with market expectations and net cash of £190m exceeding expectations, supports enhanced shareholder returns.

The company intends to nearly double dividend payments in FY 26 by implementing a 3.0x dividend cover policy and plans a £20m share buyback programme in FY 26.

FY 25 revenue was £525m in the second half, similar to the first half, reflecting project rephasing.

Management Comment

CEO Alex Vaughan stated that:

"It has been another positive year for Costain, with increased profitability, strong cash generation and further momentum in securing high-quality work across our chosen growth markets.

The removal of the dividend parity arrangement and current intention to both significantly increase dividend payments and undertake a new £20m share buyback programme is supported by the strength of our balance sheet, substantial forward work position and confidence in our end markets."

Broker's View

Analysts Joe Brent and Joe Walker, at Panmure Liberum, rate the group's shares as a Buy, with a 190p a share Target Price.

"A CY 26 P/E of 10.5x and P/E on target EPS of 8.6x are simply too cheap given £190m of expected cash on the balance sheet. BUY, TP 190p

We retain our BUY and target price of 190p based on a SoTP.

Given the complexity of lease accounting, we believe that EV/EBITDA is a good way to value construction businesses.

The shares are trading on a P/E of 8.6x, assuming recovered FD EPS of 22p.

It is simply too cheap given the exposure to the strong infrastructure outlook in the UK and the Energy Trilemma, and expected cash on the balance sheet."

The analysts now look for the end-December 2025 Finals to show, as expected lower sales at £1,051m (£1,251m) with adjusted pre-tax profits of £49.6m (£48.5m), earnings of 13.7p (14.4p) and a dividend of 4.0p (2.4p) per share.

For this year of revenue recovery, they go for £1,245m sales, £53.4m profits, earnings of 15.4p and a dividend per share of 5.1p.

Next year, the analysts see revenues of £1,370m, profits of £63.0m, with earnings of 18.6p and paying out a dividend of 6.2p per share.

My View

I totally agree with the Panmure Liberum analysts who reckon that Costain's shares are simply too cheap.

Cavendish Capital Markets have a 215p TP, while Berenberg have 190p as their TP.

Spot net cash of £190m at the end of December last, that is not to be ignored, especially compared to its £430m market capitalisation.

I see this group's shares rising over the broker's Target Price, and then possibly over the 200p mark during this year.

(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)

(Profile 21.01.26 @ 160p set a Target Price of 199.50p)