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  • Writer's pictureMark Watson-Mitchell

Costain Group – This Group’s Shares Are Significantly Undervalued

“We shape, create and deliver pioneering solutions that transform the performance of the infrastructure ecosystem across the UK’s energy, water, transportation and defence markets.”


That is the claim by the 150 year-old Costain Group (LON:COST) – which is a business that I continue to rate as significantly undervalued.


Its shares, now 84.20p, could double and still look cheap.


Costain brings together a unique mix of experts to transform the performance of infrastructure that connects, protects and powers people’s lives.


The Business


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.


Recent Comment


The AGM Trading Update issued on 16th May saw the company confirm that trading in the first four months of the current year were in line with expectations and that the group continued to have a high-quality forward work position that aligns with its strategic plans for both the Transportation and Natural Resources divisions.


It is in line to deliver its margin targets of an adjusted operating margin run-rate of 3.5% during the course of 2024 and 4.5% during the course of 2025. 


“While the Board is mindful of the macro-economic backdrop, it remains confident in the group's strategy and medium to long-term prospects.”


Broker’s Views


Analysts Joe Brent, Alex O’Hanlon and Sanjay Vidyarthi at Liberum Capital have a 100p a share Price Objective on their Buy recommendation.


Ahead of the First Half Results to end June being announced on Wednesday 21st August, the brokers have estimates for the current full year to show £1,219m sales, £46.5m profits, 12.3p earnings and paying a 1.2p per share dividend.


For next year they see £1,216m revenues, £52.1m profits, 13.8p earnings and a 1.4p dividend.


Recent Order Book intake is looking very positive, with hopes of better margins.


My View


I am impressed that Joe Brent is so convinced about this group’s value that he predicts that the company will be showing a 20p a share earnings figure in due course.


I have been a long-term fan of this group and I continue to rate its potential very highly.


Importantly, I also like that its balance sheet is predicted to have £140m net cash within its coffers by the end of this year – which compares with its current market capitalisation of £235m, with its shares trading at around 84.20p each.


It may well take a very long time to achieve my first pre-Brexit, pre-Covid Target Price, even so these shares are destined to rise substantially, in my view, over the next couple of year or so – they remain a Very Strong Hold.



(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*)

 

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

 

 

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