Costain (COST) pushed full-year revenues beyond the £1bn mark after logging a succession of new contracts in 2014. The civil engineer reported a 5 per cent increase in underlying operating profits to £28.7m, while chalking up a record forward order book of £3.5bn.
The strong numbers came despite a £3.2m loss for Costain's natural resources division. The problems here were partly linked to the fall-away in crude oil prices, along with costs associated with a PFI contract awarded in 2007 by the Greater Manchester Waste Disposal Authority.
Construction groups always face the danger that underperforming legacy contracts can drag on earnings, so management has deliberately set out to secure lower-risk contracts that serve the UK's national infrastructure needs in energy, water and transportation. Over time, management hopes this should result in more predictable revenue streams, particularly as Costain's major customers have been consolidating their supply chains. Shareholders can take encouragement on this score, as over 90 per cent of Costain's contract base is as a result of repeat business.
During the year, the UK Highways Agency selected Costain for a £102m contract to deliver improvements to the A556 in Cheshire. The group's diversified service offering is also highlighted by a framework contract awarded by BAE Systems (BA.) for the redevelopment of its submarine works in Barrow.
Pending upgrades, Liberum anticipates EPS of 19.7p for 2015 (from 27.2p in 2014).
| COSTAIN (COST) | ||||
|---|---|---|---|---|
| ORD PRICE: | 305p | MARKET VALUE: | £308m | |
| TOUCH: | 305-306p | 12M HIGH / LOW: | 308p | 248p |
| DIVIDEND YIELD: | 3.1% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 109p* | NET CASH: | £149m | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 1.0 | 27.9 | 36.4 | 10.0 |
| 2011 | 1.0 | 23.9 | 29.2 | 10.0 |
| 2012 (restated) | 0.9 | 24.7 | 35.4 | 10.8 |
| 2013 (restated) | 1.0 | 12.9 | 17.6 | 11.5 |
| 2014 † | 1.1 | 22.6 | 22.2 | 9.5 |
| % change | +17 | +75 | +26 | -17 |
Ex-div: 16 Apr Payment: 22 May †2014 EPS and dividends predicated on the enlarged capital base following the capital raise completed in March 2014. *Includes intangible assets of £31m, or 31p a share. | ||||
