In recent years, Costain (COST) has been re-angling towards technology-integrated infrastructure. It is common for companies’ management to proclaim their expertise in “tech” without qualification, but in Costain’s case, it rings true. Roughly a third of the engineering group’s workforce is in a technology or consultancy role.
The shift has had short-term consequences. The group’s changing activities led sales to fall 14 per cent in the year. However, management said capital activity was also lower as clients in their end markets geared up for the beginning of new regulatory periods, whether AMP7 in the water sector, or CP6 in Rail. Revenues were expected to continue to fall in the current financial year before reversing once both programmes are up and running in 2020. Indeed, the order book has already begun ramping up, ending the year up 8 per cent at £4.2bn – with over 90 per cent repeat business.
For all the short-term cost, the shift towards tech has already led to a jump in margins. The adjusted operating margin was 3.6 per cent in 2018, excluding joint ventures, up from 2.9 per cent the previous year. Management expects both of its divisions to meet the 4-5 per cent target in the current financial year.
Analyst Investec is forecasting adjusted EPS of 37.8p in 2019, up from 37.2p in 2018.
| COSTAIN (COST) | ||||
| ORD PRICE: | 380p | MARKET VALUE: | £ 407m | |
| TOUCH: | 379.5-382.5p | 12-MONTH HIGH: | 494p | LOW: 298p |
| DIVIDEND YIELD: | 4.0% | PE RATIO: | 12 | |
| NET ASSET VALUE: | 170p* | NET CASH: | £118.8m | |
| Year to 31 Dec | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 1.07 | 22.6 | 22.2 | 9.50 |
| 2015 | 1.26 | 26.0 | 21.8 | 11.0 |
| 2016 | 1.57 | 30.9 | 25.7 | 12.7 |
| 2017 (restated) | 1.73 | 41.8 | 31.1 | 14.0 |
| 2018 | 1.49 | 40.2 | 30.9 | 15.2 |
| % change | -14 | -4 | -1 | +8 |
| Ex-div: | 11 Apr | |||
| Payment: | 17 May | |||
| *Includes intangible assets of £58.5m, or 55p a share | ||||
