Costain Share Discussion Threads

[mirabeau] 23/4/2024 18:47

From IC April 8 2024 - Costain third in line as a potential takeover target -


IC 2024 Takeover Screen Stocks
Adjusted Reported
Company TIDM Industry Price (£) Market Cap (£mn) EV (£mn) EV/EBIT LTM EV/EBIT NTM Variance EV/EBIT LTM EV/EBIT NTM Variance
Jupiter Fund Management JUP Investment Trusts/Mutual Funds 0.87 455 100 1.0 1.5 46% 4.6 1.4 -69%
Rathbones RAT Investment Managers 15.38 1,601 234 1.7 1.3 -22% 3.6 1.2 -66%
Costain COST Engineering & Construction 0.77 213 77 1.9 1.7 -8% 2.5 1.8 -29%
Centrica CNA Gas Distributors 1.24 6,635 4,684 2.0 3.3 67% 1.2 3.2 154%
EnQuest ENQ Oil & Gas Production 0.15 292 972 2.3 2.6 15% 2.3 2.6 16%
Diversified Energy DEC Oil & Gas Production 10.03 474 1,501 2.8 3.8 33% - 5.3 -
Reach RCH Publishing: Newspapers 0.73 228 275 2.8 2.8 -1% 2.9 2.8 -4%
Bridgepoint BPT Investment Managers 2.48 1,971 441 2.9 2.1 -28% 3.5 2.0 -41%
Just JUST Life/Health Insurance 1.08 1,118 1,276 3.1 2.7 -11% 2.7 2.7 -1%
Kenmare Resources KMR Other Metals/Minerals 3.55 317 335 3.1 4.4 42% 3.0 4.7 57%
Pharos Energy PHAR Oil & Gas Production 0.22 91 94 3.2 3.2 -2% - 2.2 -
Secure Trust Bank STB Major Banks 6.66 125 269 3.2 2.6 -21% - 2.6 -
PayPoint PAY Regional Banks 4.78 347 240 3.4 3.1 -9% 3.8 3.1 -19%
Plus500 PLUS Investment Banks/Brokers 18.37 1,435 930 3.6 3.8 5% 3.6 3.9 9%
TP ICAP TCAP Investment Banks/Brokers 2.26 1,721 1,105 3.7 3.7 0% 6.7 3.7 -45%
Galliford Try GFRD Engineering & Construction 2.34 232 85 3.7 3.1 -17% 4.4 3.1 -31%
Smiths News SNWS Wholesale Distributors 0.48 115 145 3.8 3.8 1% 3.8 3.8 0%
On The Beach OTB Other Consumer Services 1.65 275 108 3.9 2.9 -26% 4.6 3.4 -24%
Drax DRX Electric Utilities 4.84 1,863 3,188 4.0 4.5 14% 3.9 4.6 16%
Schroders SDR Investment Managers 3.68 5,748 2,761 4.4 3.8 -13% 5.2 3.9 -24%
Liontrust Asset Management LIO Investment Managers 6.33 406 305 4.7 4.9 4% 25.4 5.0 -80%
Morgan Sindall MGNS Engineering & Construction 22.70 1,050 665 4.7 4.5 -4% 4.8 4.6 -4%
Bank of Georgia BGEO Major Banks 51.20 2,333 3,108 4.9 4.5 -8% - 4.5 -
Capital Limited CAPD Engineering & Construction 0.88 173 222 4.9 4.6 -7% 4.9 4.6 -6%
Kier KIE Engineering & Construction 1.25 527 713 5.0 4.6 -7% 6.4 4.6 -28%
Future FUTR Publishing: Books/Magazines 6.97 794 1,226 5.1 5.4 5% 7.8 5.3 -32%
Phoenix PHNX Life/Health Insurance 5.48 5,469 3,315 5.2

[mirabeau] 23/4/2024 18:44

Bullish IC article from Feb 2024 -

--

How Kier and Costain are thriving as rivals fail

More construction companies went bust last year than in any other industry, but some shares are soaring



- Lack of exposure to residential projects has helped
- Both struggled during the pandemic but have shored up their balance sheets

More construction companies went bust last year than in any other sector for the third year running, but most of the major listed contractors continue to thrive.

Some 4,370 construction companies entered an insolvency process in the year ended November 2023, equating to 17 per cent of all UK corporate insolvencies, according to an analysis of Insolvency Service data by accountancy firm Mazars. “There are now on average a dozen building companies going under every single day in the UK,” said Mark Boughey, a restructuring services partner at the firm. Small and medium-sized contractors said workloads declined by 15 per cent last year and almost half reported a fall in new enquiries, the Federation of Master Builders said.

However, contractors at the top end of the sector are flourishing, though, with most listed operators recording share price gains that comfortably outperformed the market.

Kier’s (KIE) shares are up 82 per cent over the past 12 months. Shares in Costain (COST) are up 55 per cent, Galliford Try (GFRD) 47 per cent and Morgan Sindall (MGNS) 31 per cent. Only Balfour Beatty (BBY) has been a laggard, with its shares trading 8 per cent lower. Jefferies analysts highlighted investor concerns about a slowing US construction market and cancellations to future work from HS2 as factors for this.

In general, listed contractors’ lack of exposure to the UK’s moribund residential new-build market has been a bonus. Output in private housing shrank by 19 per cent last year and is set to contract by a further 4 per cent this year, according to the Construction Products Association.

Over the past decade, the likes of Kier, Costain and Balfour Beatty have switched their domestic focus much more towards delivering large infrastructure projects. The high-profile failure of Carillion in 2018 and Interserve a year later means this is a less crowded field and contract terms for this work are more industry-friendly. It is typically done on a ‘cost-plusR17; or target cost basis, meaning contractors no longer face the prospect of heavy losses on fixed-price, multi-year projects if materials or labour prices jump higher.

“You’ve got arguably less of the more ill-disciplined players left because the likes of Carillion have gone bust and the ones that remain are just managing that whole risk, contract appraisal and bidding process a lot better,” said Aynsley Lammin, an analyst at Investec.

According to Balfour Beatty’s most recent annual report, only 10 per cent of UK construction work is carried out under a fixed-price contract, compared with 50 per cent in 2018.

This isn’t a luxury afforded to smaller firms, and in many cases risk is “passed down the supply chain”, Boughey said, with tier two and tier three suppliers often tied into fixed-price contracts.

“They don’t seem to have much bargaining power with the main contractors,” he said.


Firm foundations

The other major factor behind listed contractors’ rerating has been balance sheet strengthening.

Kier had been in a precarious position even before the pandemic and undertook two rights issues between 2018-2021, raising over £500mn and offloading non-core businesses in a bid to stay afloat.

Shareholders understandably took flight, and it’s taken a couple of years of significantly improved trading and debt reduction to tempt them back. Average month-end net debt fell from £582mn in 2021 to £232mn last year and last week the company announced plans to refinance its remaining debt through a £250mn bond issue. The five-year notes offered an interest rate of 9 per cent and attracted a BB+ rating from Fitch. The ratings agency said that 60 per cent of Kier’s contracts have pass-through clauses, allowing for costs to be recouped.

Costain also had to complete a £100mn rights issue at the height of the pandemic in March 2020 at a time when its revenue and profits were plummeting. It has also had to rebuild trust – when we featured the company in our ideas section in September 2022 its shares were so lowly rated that the company was only valued at around half of its net assets. Even after their recent upgrade, they are valued at just six times forecasted earnings.

Lammin said Costain has made “good progress” on improving profitability, with the company’s adjusted operating margin edging up to 2.3 per cent at the half-year and a roadmap in place to bump this up above 5 per cent.

“If you believe in the sustainability of those structurally higher margins as they deliver them and a less risky balance sheet, then [Costain] looks very, very cheap,” he said. [But] they’ve got to convince the market the improvements they’re making are sustainable.”

The government’s Infrastructure and Projects Authority (IPA) updated its project pipeline last week and acknowledged that a 40 per cent increase in construction prices since January 2020 meant project owners had been forced to “reset expected outputs to remain within approved budgets”.

However, the IPA said there were still £164bn of investments planned by the end of the next fiscal year, adding that £700bn-£775bn of work needs to be done over the next decade. Whether all of this gets commissioned (or how quickly) will play a big part in listed contractors’ fortunes in the coming years.

end

[ttny2004] 23/4/2024 18:37

Agree. A few of us having being saying that for some time now. Tested our patience and finally being rewarded.

[sophia1982] 23/4/2024 17:26

In spite of the little rally, the stock still trades at 1.6 times EV/EBITDA. That is still immensely cheap.

[pinemartin9] 23/4/2024 15:57

Yeah, this is the explosive phase in the share price recovery. Well done all long term holders. And also, welcome aboard to all newbies in here.

[hamhamham1] 23/4/2024 15:29

Lovely rise today, 180p my target (£500m market cap)

[someuwin] 23/4/2024 15:01

This chart gives a better perpective of the recovery taking place here.

[someuwin] 23/4/2024 14:01

Water infrastructure alone is going to be a huge market for COST for years to come. Especially when Labour get in.

The recent Northumbrian Water contract awards alone are worth £670m over 12 years.

[mirabeau] 23/4/2024 13:56

I know something, interest rates are coming down this year and that should boost stocks even further

[mirabeau] 23/4/2024 13:42

Nice technical breakout and rock solid fundamentals with a cash pot equalling around 75% of the company's valuation. Bought some yesterday, was waiting for breakout

[someuwin] 23/4/2024 11:01

Good slide from results presentation showing some of COST's sectors & customers

[pinemartin9] 22/4/2024 15:10

Good volume today.

[hamhamham1] 22/4/2024 12:32

Knock, Knock!
Who's there?
Atey!
Atey who?
Atey Pee share price!!!

[hamhamham1] 22/4/2024 08:59

Anyway, up the 22!

[hamhamham1] 22/4/2024 08:58

Up 5%, lovely.

[someuwin] 22/4/2024 08:17

Share tip: Costain is building itself up again
Builder is leading the resurgence in the construction sector
Lucy Tobin
Sunday April 21 2024, 12.01am, The Sunday Times

"The construction sector is picking itself up out of the rubble. Last year, more building companies went bust than in any other industry — a record 4,400 collapsing due to supply chain disruption, high material prices and labour shortages. The larger players stayed the course — most had improved their risk calculations after the liquidation of rival Carillion and Interserve’s rescue by its lenders. Now, more stable interest rates, easing inflation and more contract tendering are boosting construction’s appeal.

The City has noticed, to an extent: Kier and Costain’s shares are 20 per cent higher than at the start of the year; Balfour Beatty and Galliford Try are up about 7 per cent. But they’re still a long way from their past peaks. Costain, for example, is now trading at 75p, less than half its pre-pandemic share price of 194p, while back in May 2019, its shares changed hands for £3. Since then, the firm, founded in Liverpool in 1865 has been punished for booking expensive charges for badly priced energy and road contracts, and diluted by a £100 million rights issue at the start of the pandemic, required to secure the balance sheet.

But Costain is a vastly improved outfit from the housebuilder it was long ago. It has been transformed into an infrastructure contractor with tentacles in many a sector. It works with most of the major water suppliers on pollution-kerbing upgrades, with National Highways, Transport for London and National Rail, on the government’s contracts to decommission first-generation nuclear sites, and in defence. Costain looks poised to benefit from the UK’s likely Labour-led investment in more infrastructure projects. As Joe Brent, head of research at Liberum, explained: “We are optimistic about the outlook for infrastructure and believe Costain is the purest trade on this theme.”

Last month, the firm posted a 10.5 per cent rise in adjusted operating profit to £40 million for 2023. This year, more than 80 per cent of its revenues have already been booked. Chief executive Alex Vaughan pointed out that the value of this is about three times last year’s earnings. This confidence helped Costain bring back its annual dividend. Its cashflow is smoother due to recent cost-cutting tinkering: for example, its pension fund contributions were dramatically slashed following a review last year. Net cash stands stronger at £164 million, from £124 million a year ago. The relatively small gap between those cash reserves and Costain’s £217 million market capitalisation hammers home its good value.

Of course, the firm remains vulnerable to the ebbs and flows of contract-awarding mandarins, as has been seen with HS2. But analysts predict its pre-tax profit will exceed £52 million next year, and Costain’s shares are trading on just five times earnings for this year. It has a packed order book of blue-chip customers and has rebuilt its reputation: Buy Costain."

[hamhamham1] 21/4/2024 17:44

Oh yeah, soz missed that one out earlier.
They making a billion profit before currency drop.

sa=X&ved=2ahUKEwjtmdjwwKOFAxW2QkEAHV7EBrgQmY0JegQIBRAv&window=6M
Owners are canny, happy to hold.
(IMO the payments side alone will be worth current market cap of whole, plus big share buybacks, time will tell)

My best 3x chance is FDM on the list. Once markets turn with interest rate drops, that could hit 10 quid in a short time IMO (just my view!).

Anyways, Costain will have a lovely day tomorrow.
Holders enjoy.

[hamhamham1] 21/4/2024 16:53

Yeah, CABP and PZC ;)

[roguemale1] 21/4/2024 16:27

Couple of big calls on the Naira there Ham, but thanks for posting. I know some people wont like it but the boards quiet. hopefully some news on the pension position will get everyone engaged again...

[hamhamham1] 21/4/2024 09:33

IMO, 22 shares which I think can double, on average, over next 12-24 months (can compare against The Mail's 20 ;)...

ABDN, AAF, BT.A, BRBY, CABP, CBG, COST, CRST, DOCS, EZJ, FDM, FSJ, HFD, HSS, WG., MARS, OTB, PSN, PZC, RNK, STAF, TPK

....GLA :)

[hamhamham1] 21/4/2024 06:38

Prob see a 3-5% bump up on open come Monday. The Times share tips usually do that.
Holding the rise, well that's another thing :)
180p (£500m market cap) target for me.
GLA.

To be honest. The Mail tip and The Times tip, both had a different big point each made, surprised both papers didn't mention both points.
-The Times mentioned the £100m share dilution carried out a few years ago.
-The Mail mentioned the current cash in bank, which equates to 90% of market cap.

You need both points to get a fairer picture.

[someuwin] 15/4/2024 08:29

20 dirt-cheap British stocks experts say could make you a fortune

...

COSTAIN (FTSE ALL-SHARE)
Infrastructure company Costain made losses from 2019 to 2021, but it is now in better business shape, buoyed by a strong order book.

AJ Bell's Russ Mould says the business is seriously undervalued, with a market capitalisation little above the amount of cash it had on its balance sheet at the end of last year. This, he says, provides investors with protection should anything go wrong in the future – and plenty of upside if it can improve the returns it makes on sales.

With a new management team in place and the opportunity to be part of big infrastructure projects such as the Sizewell C nuclear power plant in Suffolk and Network Rail's £40billion spending plans between now and 2029, the company has the potential to grow its profits (£30.9million last year).

Its shares trade at around 77p, and encouragingly it returned to paying shareholders a small dividend last year of 1.2p a share.