Costain Group – despite the recent market mayhem, this infrastructure group’s shares have been edging higher, now 110p, its AGM Trading Update is due in a couple of weeks, TP 150p

30.04.2025

Do not let this one pass you by!

Gradually the shares of the £302m-capitalised Costain Group (LON:COST) have been edging higher of late, and that is despite what has been going on in the equity markets generally.

The group will be holding its AGM on Thursday 15th May, ahead of which I anticipate that the company will issue a positive Trading Update.

I remain totally convinced that this group’s shares are substantially undervalued at the current 110p and offer some very significant upside in price.

The Business

This Maidenhead-based group, which can trace its roots back to 1865, is one of the UK’s leading construction and engineering companies. 

Although the group’s corporate history includes extensive housebuilding and mining activities, it is now focused on civil engineering and commercial construction projects.  

The base of the group’s strategy is that Costain helps to improve people’s lives by creating connected, sustainable infrastructure that enables people and the planet to thrive.  

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. 

The group operates in six main sectors – Rail, Integrated Transport, Road, Water, Energy, and Defence and Nuclear Energy.

Rail – it delivers end-to-end asset lifecycle solutions across the entire railway, from major station projects to multi-disciplinary rail projects.

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.

Water – it is a leading provider of engineering solutions to UK water utility companies across the asset lifecycle.

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.

Defence and Nuclear Energy – it supports the strategic defence capabilities and energy resilience that protect and power the UK, its people, values, and interests.

Management Comment

CEO Alex Vaughan stated that:

"I am pleased that we had another good year with adjusted operating profit at the upper end of expectations.

We delivered a further increase in operating profit and earnings per share, building on our strong financial performance track record of the past three years. 

Adjusted operating margin increased significantly, exceeding our target for FY 24, and we remain on track to deliver our margin target for FY 25.

The record growth in forward work position is expected to deliver further progress in FY 25 and FY 26, followed by a step change in FY 27 performance. 

The quality, balance and better risk profile of our forward work position of £5.4bn across our two divisions, together with continued investment in our chosen markets, gives us increasing visibility on future revenue and margin.

We continue to deliver improvements and invest in the business, and are increasingly confident in the Group's growth prospects, with our strong cash position and cash generation enabling the Group to enhance returns to shareholders."

Outlook

Commenting on the group’s Outlook, it noted that:

“The successful execution of our strategy has delivered a record increase in our forward work position of £1.5bn to £5.4bn.

This, together with growth on existing frameworks, gives us increasing visibility and confidence on delivering further progress in FY 25 and FY 26, with a step change in performance in FY 27 and beyond. 

We have already secured approximately 80% of our forecast revenue for FY 25 and our current levels of bidding activity remain high.”

The Equity 

There are 268.77m shares in issue, of which some 63% are held by investment professionals.

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 (2.83%), KBI Global Investors (2.70%), BlackRock Investment Management (2.11%), Amundi Asset Management (2.10%), and CACEIS Bank (2.10%).

Broker Views

Some six analysts follow the group, five of whom rate the shares as a Buy, the other calling them a Hold.

The consensus average Target Price is 142p, the highest is 187p, while the lowest is 115p.

Analysts Joe Brent and Joseph Walker, at Panmure Liberum, are rating the group’s shares as a Buy, looking for 150p in due course. 

Their estimates for the year to end-December 2025 are for £1,260m (£1,251m) of revenues, a higher profit of £52.1m (£48.5m), with earnings of 14.3p (14.4p) and increasing its dividend to 2.6p (2.4p) per share. 

The brokers are looking for £1,275m in sales in 2026, with £56.7m profits, worth 15.5p in earnings and paying a 2.8p dividend per share. 

It is well worth noting the analyst estimates for the group’s end-of-year cash balances – for 2025 £180.6m (£158.5m), and for end-2026 a massive £202.7m in cash. 

My View

Whatever Government is in control – it is obvious that a massive increase in infrastructure spending will be required – and Costain is already and will still be an expected winner of significant contracts.

Yesterday’s dealing volume of some 2.1m shares traded was so much higher than its daily average.

It is that pointer upon which I am fixed when stating that this group’s shares, now at almost a five-year High at 110p,

are not to be ignored.

And remember the AGM Trading Update in two weeks could well be very positive in content, which could help shift the shares to a more realistic level.

(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*)