Costain Group – Trading Update confirms Order Book is four times annual revenue, that it has spare cash, while its broker ups Target Price to 170p, shares now 130p

16.06.2025

This morning Costain Group (LON:COST) has announced that ahead of publishing its first-half results to end-June 2025, due on Wednesday, 20th August, it has confirmed that its trading remains in line with the Board's expectations for the full year to end-December.

It noted that it retained a strong, high-quality forward work position that is more than four times annual revenue and is busy bidding further new work across all sectors. 

The group’s wins in the year to date include:

·    new contracts in Nuclear Energy with Urenco and Sizewell C, as announced in the Group's AGM trading update on 15 May 2025; and

·    further work with Anglian Water, as part of the Strategic Pipeline alliance, to deliver an additional 260 kilometres of major strategic pipeline in the East of England over the next five years, to improve resilience to drought and climate change.

Together with growth of existing frameworks across its broad customer mix, this gives the Board increasing confidence in the Group's ability to deliver further progress, and the Group remains on track to meet its 4.5% adjusted operating margin run rate target during FY 25.

Management Comment

CEO Alex Vaughan stated that:

"Over the past three years we have executed on our strategic plans, improved the quality and size of the Group's contract portfolio, delivered on our margin targets, significantly strengthened our net cash position and successfully refinanced our bank and bonding facilities, giving the Group the financial strength and capability to support its future growth opportunities.

We have increased our net cash position from £123.8m at the end of FY 22 to £158.5m at the end of FY 24, including the resumption of dividend payments towards our target earnings cover, the £10m share buyback programme in FY 24, and investment in our people and systems.

Accordingly, with our defined benefits pension scheme in surplus for the second consecutive year, we are pleased to announce a further share buyback programme that is consistent with the Group's capital allocation framework."

The Business

Costain improves people's lives 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.

By bringing together its unique mix of construction, consultancy, engineering and digital services, it works strategically with its customers and suppliers to meet critical national needs.

Together, Costain’s people transform the performance of the infrastructure that connects, protects and powers people's lives.

Broker’s View

Following this morning’s statement, analysts Joe Brent and Joe Walker, at Panmure Liberum, have upped their Target Price for the group’s Buy-rated shares, from 150p to 170p.

They have also increased their earnings estimates for 2025 and 2026.

For the current year to end-December 2025 they estimate revenues of £1,260m (£1,251m) and pre-tax profits of £52.0m (£48.5m) with earnings of 14.4p (14.4p) and paying a 2.6p (2.4p) dividend per share.

For 2026 they see £1,275m revenue, £56.4m profit, 15.9p of earnings and a 2.9p dividend.

The 2027 year could show £1,413m turnover, £63.0m profits, 17.7p per share of earnings and a 3.2p dividend.

My View

My goodness, Costain shares are undervalued at just 130p, with so much of a forward Order Book and a strong balance sheet.

I can totally understand the brokers upping their Target Price to 170p.

Costain is infrastructure

(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.