Costain (COST) has changed over the years from being a construction group into an engineering solutions provider. It may not seem much, but the change has had significant consequences, not the least being its ability to take on much bigger and more complex contracts that in turn improve visability. As investors warm to the changes, we expect the shares to outperform.
- Record order book
- Attractive dividend
- Net cash position
- Enhanced ability to chase bigger contracts
- Weak Natural resources division
- Cash holdings expected to shrink
Costain's customers like trading with one contractor who provides a whole range of services that cover planning, construction, maintenance; it makes sense and saves a lot of paperwork. And as a result of more work procured through ‘target cost, cost reimbursable’ contracts, there is a greater level of collaboration with clients. Furthermore, although the higher upfront cost of winning these types of contracts is causing a big one-off cash drain, it means there is increased visibility over long-term projects and a significantly enhanced risk profile. Concentrating on water, nuclear and transport work also makes sense because these are less vulnerable to the vagaries of work in the private sector.