It might be difficult to imagine pipes, roads and power lines as intelligent, but Costain (COST) is betting heavily that smart infrastructure is the way of the future. The engineering group plans to use data analysis and technological innovation to improve the efficiency of its customers' assets and has invested heavily in its technology and consultancy capabilities to allow it to do so. The group’s decision appears to have been the right one. The day before the half-year results announcement, it won a contract to build a “connected vehicle corridor” on a live road – allowing self-driving vehicles to travel alongside human-operated ones.
A shift in THE business mix is always going to be challenging. Luckily, Costain’s shift is taking place alongside its customers. Over 90 per cent of the group’s order book is repeat business, and as it picks up more technology contracts, it is doing so for clients with whom it has an established relationship such as Highways England and Network Rail.
The changing business mix, combined with the completion of a number of major projects in the previous period, meant sales were down in the first half of the year. However, margins have improved, leading to an 8 per cent increase in underlying operating profit. Management expects margins to reach the 4-5 per cent target range in the second half of the year.
Analyst Peel Hunt is forecasting adjusted pre-tax profit of £48m for the full year, giving EPS of 36.1p (FROM £43.4m and 34.2p in 2017).
| COSTAIN (COST) | ||||
| ORD PRICE: | 425p | MARKET VALUE: | £452m | |
| TOUCH: | 425-429.5p | 12-MONTH HIGH: | 494p | LOW: 391p |
| DIVIDEND YIELD: | 3.4% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 170p* | NET CASH: | £77.7m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 848 | 15.7 | 12.2 | 4.75 |
| 2018 | 759 | 19.5 | 15.1 | 5.15 |
| % change | -11 | +24 | +24 | +8 |
| Ex-div: | 13 Sep | |||
| Payment: | 19 Oct | |||
| *Includes intangible assets of £60m, or 56p a share | ||||
