The Covid-19 hit to construction activity meant Costain's (COST) adjusted operating profit plunged by almost three-quarters year-on-year in the six months to 30 June. Around 30 per cent of its operations were paused at the end of March and cost savings were unable to offset the drop in revenue, spending on safety measures and delays to the award and start of new contracts. While all projects have now resumed, productivity has only returned to 90 per cent of normal levels.
On a statutory basis, Costain swung to a £90.4m loss versus a £10.2m profit a year earlier, weighed down by exceptional charges relating to problematic contracts. The biggest hit came from an agreement to upgrade two gas compressor stations for National Grid (NG.) that was terminated earlier this year. The group has registered a £49.3m charge for work that has been completed but not yet paid for, which it expects to be recovered through a resolution process. There is also a £45.4m impairment relating to the A465 road project after arbitration over who would cover additional costs ruled in favour of the Welsh government.
Thanks to a £100m equity raise, Costain is sitting on £141m of net cash (excluding lease liabilities), almost double its position from the start of the year – although £85m of this is tied up in joint operations. The group is guiding that net cash will drop to between £70m and £80m by the year-end as continues to spend on the National Grid and A465 contracts. Despite the positive cash balance, there is no interim dividend.
House broker Liberum anticipates adjusted operating profit will come in at £18.5m for the full year, down from £38.2m in 2019, and recovering to £31m in 2021.
| COSTAIN (COST) | ||||
| ORD PRICE: | 45.7p | MARKET VALUE: | £ 126m | |
| TOUCH: | 45.6-46.0p | 12-MONTH HIGH: | 204p | LOW: 29p |
| DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
| NET ASSET VALUE: | 65p* | NET CASH: | £108m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2019 | 594 | 8.4 | 6.1 | 3.80 |
| 2020 | 460 | -92.3 | -49.9 | nil |
| % change | -23 | - | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes £59m in intangible assets or 22p a share | ||||
