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Costain raises funds to bolster growth

TIP UPDATE: Costain will have greater fire-power to take on bigger infrastructure contracts after announcing plans to raise £75m of fresh funds
March 4, 2014

Shares in construction and services group Costain (COST) tumbled 17 per cent after it announced plans to raise £75m in new funds through a placing and open offer. But the move could provide robust support for the group's longer-term growth prospects.

IC TIP: Buy at 267p

Costain will issue just over 33m new shares at 225p a share, representing a 30 per cent discount to the share price just prior to the announcement, and management says the funds will allow the group to "take greater advantage of the opportunities in its chosen markets". Given the scale of the funds being pumped into those markets - significantly, investment in the energy and water sectors as well as in government-related infrastructure projects - there should be plenty of scope for Costain to win new business. Even without those opportunities, Costain has been performing strongly. With its full-year figures - announced alongside the fundraising - Costain reported a 25 per cent hike in the order book last year to £3bn, while adjusted earnings rose 11 per cent to 44.1p. The dividend, meanwhile, was increased from 10.75p to 11.5p which makes for an attractive 4.3 per cent yield.