Costain Group – capitalised at £461m, with £180m cash, making £1m a week profit, on 11.5 times 2026 earnings, shares 171.60p, TP 297p

Mark Watson-Mitchell
3 minutes ago
4 min read

Mark Watson-Mitchell - 06.03.2026

Next Tuesday, 10th March, Costain Group (LON:COST), the UK construction and consultancy, will declare its results for the year to end-December 2025.

Considering Governmental delays coupled with economic headwinds, it will have done well to maintain its profits on the back of an expected 16% lower revenue for that year.

However, I look for the £472m-capitalised business to express confidence in its prospects for the current year, as it expects to see over a 20% uplift in its sales and a move forward in its profits.

FTSE250 Entry Excites Interest

On Monday of this week, 2nd March, the group marked its first re-entry to the FTSE250 Index in over two decades, attributing its consistently strong financial performance, growth in key markets, and increasing shareholder returns.

Its Chief Executive cited its increased profitability, positive cash generation, and momentum in securing high-quality work as evidence of the group’s successful strategy.

It is worth noting that last Thursday, when the Index change was announced, some 14.9m shares changed hands, around 16 times the previous daily average dealing volume.

Followed by another 8m dealt the next day.

The Business

Costain has been improving the lives of people for more than 160 years, by creating connected, sustainable infrastructure that enables people and the planet to thrive.

Through the delivery of predictable, best-in-class solutions across the transport, water, energy and defence markets, it is creating a sustainable future and securing a more prosperous, resilient and decarbonised UK.

It offers a unique mix of construction, consultancy, engineering and digital services, working strategically with its customers and suppliers to  meet critical national needs.

It operates through two main segments: Natural Resources and Transportation.

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

It shapes, creates and delivers pioneering solutions that transform the performance of the infrastructure ecosystem.

Latest Trading Update

On Monday, 26th January, the group issued a Trading Update for the year to end-December, declaring strong trading results, including adjusted operating profit in line with market expectations and net cash of £190m exceeding expectations, supporting enhanced shareholder returns.

The company intends to nearly double dividend payments in 2026 by implementing a 3.0x dividend cover policy, and it plans a £20m share buyback programme.

It stated that revenue was £525m in the second half, similar to the first half, reflecting project rephasing.

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 2026 and a step change in performance in 2027 and beyond.

Management Comment

At that time, 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."

The Equity

There are some 268.77m shares in issue.

The larger holders include Gresham House Asset Management (Investment Management) (7.69%), Ennismore Fund Management (6.71%), Gresham House Asset Management (5.63%), UBS Asset Management (UK) (5.30%), JO Hambro Capital Management (5.03%), FIL Investment Advisors (4.05%), Artemis Investment Management (3.18%), OP Asset Management (3.05%), KBI Global Investors (2.72%) and CACEIS Bank (2.14%).

Broker Views

There are six broking firms following the group, five of whom call the shares a Buy, the other a Hold.

The average of the analyst consensus is for a 204p Target Price, with the Highest being 297p and the Lowest being 150p a share.

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

For 2025, they expect group sales to be lower at £1,051m (£1,251m), but with pre-tax profits of £49.6m (£48.5m), generating earnings of 13.7p (14.4p) and paying out a dividend of 4.0p (2.4p) per share.

For the 2026 year now underway, they anticipate a recovery in revenues to £1,245m, with £53.4m profits, generating 15.4p per share in earnings and paying out a 5.1p per share dividend.

The analysts estimate that 2027 could see £1,370m of turnover, £63.0m profits, generating 18.6p in earnings and giving a 6.2p per share dividend.

Analyst Max Hayes, at Cavendish Capital Markets, has that 297p a share Target Price on his Buy note.

He looks for 2025 revenues of £1,050m (£1,251m), with £50.6m (£50.8m) adjusted pre-tax profits, 14.1p (13.9p) earnings and a 4.2p (2.4p) dividend per share.

For 2026, his figures suggest £1,272m sales, £53.0m profits, 15.2p earnings and a dividend of 5.1p per share.

Looking into 2027, he has estimated £1,394.5m sales, £59.6m profits, 17.5p of earnings and a healthier dividend of 5.8p per share.

In My View

Considering the group’s circa £5bn Order Book, and its balance sheet strength, I feel that the analysts are too conservative.

After having recently peaked at 195p, the group’s shares have slipped back over the last few days, now at 171.60p, they look extremely investment worthy.

Capitalised at only £461m, with some £180m in cash, and trading on 11.5 times current year earnings, my recently set Target Price of 210p looks to be an easily achievable objective.