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Record order book at Costain

Costain is attracting more work, and the order book now stands at a record £3.2bn.
August 21, 2014

Costain (COST) attracted some criticism from smaller shareholders over the dilutive effects of a £70m share placing in March. The construction group has hit back with a 32 per cent increase in its half-year dividend pool - although that still meant the payout fell on a per-share basis.

IC TIP: Buy at 275p

Costain has transformed itself over the years and now offers a complete range of services. Customers find this attractive because it means they no longer need to negotiate with multiple providers. And the benefits seem to be showing through, with over 90 per cent of the record £3.2bn order book representing repeat business.

The fundraising gives Costain the fire-power to take on much bigger projects, and also offsets the capital drain on new work opened up by a switch to so-called 'target cost, cost reimbursable' contracts. This contracting model - whereby Costain and its clients adopt a more collaborative approach to agreeing a target price - reduces the company's exposure to cost overruns, but also defers payment.

The larger infrastructure division increased operating profit by 17 per cent to £16.9m, while natural resources posted a loss of £2.6m. Profits in the latter should return once a legacy waste contract matures. Analysts at broker Investec Securities are forecasting full-year pre-tax profit of £24.9m and EPS of 20.8p (from £29.2m and 42.4p in 2013). The fall reflects a one-off disposal gain that boosted the prior year's figures by £9.1m.

COSTAIN (COST)
ORD PRICE:275pMARKET VALUE:£278m
TOUCH:274-277p12-MONTH HIGH:299pLOW: 234p
DIVIDEND YIELD:4%PE RATIO:14
NET ASSET VALUE:97p*NET CASH:£134m

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20134633.13.93.75
20145295.85.83.25
% change+14+87+49-13

Ex-div: 17 Sep

Payment: 24 Oct

*Includes intangible assets of £32m, or 32p a share