Costain Share Discussion Threads

[value hound] 30/12/2019 09:07

I agree it's undervalued, and I also agree with bogdan branislov that it's undervalued notwithstanding HS2 news - so bought some both before and after the recent TU.

At the same time, I think HS2 will be at least modified / scaled back in some way / deferred (if not cancelled) to enable Boris to spend his planned feel-good billions. If that happens (though I hope it won't) the COST share price will surely give us another chance to buy lower.

[nw99] 30/12/2019 08:59

It's very cheap and unloved time to add if you don't own it already

[karv1] 29/12/2019 10:24

I believe/hope we have a good future. even after 2 horrid write-downs, we still going to get between 17-19 million profit on a company valued at 170 million. with net cash still.
Most companies in the 170 million value range would just dream of making 19 million profit with money in the bank not counting possible profits going back to 40+ million in 2020.
On another note the pension pot of 815 million with current obligations of 810 million has been closed for 14 years with 7000 members this is going to peak at some point in the future between the last retired person to the death rate. Last year it paid out 36.2 million so far this year it has paid out 17.2 million. The pension could need a lot of extra funds as time goes on, on the other hand, costain could be able to get 1 billion+ back if the pension fund does extremely well over the nest 20 30 40 years and stay ahead of payout and the fund keep growing.

[bogdan branislov] 28/12/2019 18:26

I have effectively removed HS2 revenue and profits when evaluating Costain. Costain still looks very cheap without HS2. Costain is a long way from any kind of financial distress and is already picking up additional work. Costain's financial strength is such that they are still one of the safest companies in the sector to award a contract to. Many of their competitors are showing varying degrees of financial distress, which Costain is not, even without HS2.

[carer] 24/12/2019 12:35

It is likely HS2 will be delayed as Boris Johnson has promised many new hospitals and police men. Hs2 is facing some opposition within the party, the company has over 1 billion revenue expected from hs2, it is not certain situation to invest.

[bogdan branislov] 23/12/2019 18:29

Be careful regarding the traditional house builders where they hold the land assets, margins likely to come under pressure from all sides and land prices likely to rise, which could be a real problem as most only have around 4 years of land bank, if land prices rise ahead of sale prices many could be in trouble. MJ Gleeson, decent growth, both earnings and balance sheet equity, divi well covered, great niche in the house build sector, not a screaming bargain but still very attractively priced. Countryside Properties - partnership build model is the way to go, very large number of build contracts coming through, housing frame factories now increasing output, which will help protect ROCE, good growth, solid balance sheet, price has risen bit of late, but still cheap. Morgan Sindall - pretty flawless operation, still selling cheaply. Forterra - expanding output with new kiln, huge barriers to entry, kilns take years to approve and develop, prices will rise as UK can't produce sufficient bricks, so Forterra will see both higher prices and higher volume, business of the highest quality however you look at it and cheap when outlook considered. Legal & General - rare to find a FTSE 100 bargain like this, as it is so cheap investors keep thinking that something must be wrong - nothing is wrong, look at the earnings growth, the balance sheet equity growth, the low PE, what is there not to like. Bogdan

[harry3021] 23/12/2019 14:02

karv121 may I ask what other companies apart from Costain do you see as value?

[rogerrail] 23/12/2019 11:51

I must confess, whilst I have considerable experience in engineering project management in various sectors, rail is not one of them. I am merely suggesting the strategy the government should be looking to adopt. The problem we have is there is too much noise on total cost of "HS2" when in reality the objective is about achieving a more efficient integrated rail network for the nation which is made up of many parts, some if which lie on the north to south route, you cannot just cancel an essential part of that system.

[bogdan branislov] 23/12/2019 10:27

RogerRail - interesting, you obviously know a lot about these rail projects. This approach of selective expenditure delay - which I must admit does sound like a plausible compromise when the competing demands of short and long term Government priorities are considered. How do you expect such selective delays would specifically impact Costain's work on HS2. That is, if Government did take the selective delay approach that you are suggesting could happen, what proportion of Costain's HS2 work would likely be delayed do you think?

[rogerrail] 23/12/2019 08:22

In theory if you have 100 contractors each working on 2 miles of track then the project can be completed very quickly. However where the 2 mile section involves a tunnel, bridge or terminus then clearly it will take a lot longer. Then there is the added problem of getting equipment, materials and facilities to the point of use and the lengthy planning so not quite as easy to delay expenditure as a single site project. Nevertheless there should be some scope for focusing on getting the planning and techinically complex work started and delaying high cost station building work and laying track.

[bogdan branislov] 22/12/2019 22:37

Rogerrail - interesting perspective, the approach that you suggest could make a lot of sense. Would it be possible for Government to delay expenditure and still keep the HS2 project? Would this not push the completion date further back, which could be even more damaging for the government?

[rogerrail] 22/12/2019 09:25

I dont think cancelling HS2 is in Boris Johnson's mindset at the moment. Govt may decide to delay expeniditute as happened with Hinkley Point , meanwhile getting much of the planning and prep work done, and divert capital to regional infrastructure but a long term plan is still necessary to achieve a system that works on a national level.

[karv1] 21/12/2019 17:59

I have invested a lot into Costain as well, I am not too worried as I am trying to find stocks that could give somewhere near 10% returns with good cover while at the same time being oversold with possible big future share price rises with money in the bank and low debt. This stock ticks many boxes. I know some say when a company gets endless exceptionals write-downs and losses then they become the norm, I would say with Costain pass this shows us that this is a company that is generally well run.
With how nervous the market is at moment a company just has to sneeze and it drops 20% But with sound fundamentals they always bounce back in the end.

[bogdan branislov] 21/12/2019 11:22

Re HS2 and is cancellation still in the price. I remain a shareholder, I have a 6 figure sum invested in Costain, so clearly I have a vested interest, this is how I see it, warts and all. The chance of HS2 cancellation is, in my opinion, 50% now, possibly higher. Why? because the projected costs have risen and the regional railways desperately need investment, it will be hard to do both in this parliament. Directing investment at HS2 rather than the local railways including in the former Labour regions is not a good re-election strategy for the Conservatives. HS2 is under 20% of turnover for Costain in 2020, so lets say just over 20% of its profits. The long term impact comes down to simple maths. If you deduct just over 20% of next years profits from Costain's 2020 forecast, will this make a distressed business in terms of its balance sheet and does Costain still look cheaply priced without HS2 profits. The answers are, no, Costain's balance sheet equity should grow in 2020 without HS2 and yes, without HS2 still looks very cheap. But we know that markets are skittish, if HS2 cancels then yes there will be an instant share price impact perhaps of 10% or more, hard to see a big fall from the current price as Costain's valuation more than allows for HS2 cancellation, but if the price recovers, say 15%, then HS2 cancels, Costain could fall by 10% or more instantly. This does not concern me, Costain is both high quality and very cheap, a rare combination. If HS2 cancels, Costain will pick up a lot of regional work. The construction sector has been the hardest hit by the economic and political uncertainty of recent years, Costain has shown its quality by facing challenges without balance sheet distress. I also have large holdings in CSP, MGNS, FORT, GLE and LGEN. These companies, like Costain are high quality and under priced. They have not hit quite so many bumps in the road as Costain, but this is in the price, Costain is selling for much the same share price as nearly a decade ago, with very little share issuing since and look what has happened to Costain's balance sheet equity in the past decade, around 5x up I recall. Costain should double to triple in share price over the next 2 to 3 years, no guarantees obviously, but my SIPP is over 12x up since May 2009 from investment returns/dividends alone, so my while my calls are not always right, they are correct more often than not. Essential to take at least an 18 month view here, the road could remain a little bumpy for a while. This is not a 2 way bet on HS2 continuation, I anticipate HS2 cancellation and believe Costain to be a genuine bargain without HS2. I will keep calling it as I see it on this thread.

[zeek] 18/12/2019 21:25

A lot of the newly elected Northern conservative MP's have been saying that HS2 is essential to pay back the faith shown in Boris by these former Labour safe seats. Cancellation of HS2 would go against everything that is being said about bringing more opportunities to the North. On that basis I can't see it being cancelled regardless of the cost. Keeping Northern voters sweet could keep Labour out forever.

[trcml] 18/12/2019 15:52

I am concerned that COST's order book includes £1Bn for HS2. I note that Balfour Beatty has prudently excluded HS2 from its order book. If HS2 were cancelled or modified such that the value to COST's order book were affected adversely then COST is not doing too well. Do you think the risk of HS2 cancellation or such like is already in COST's sp?

[onjohn] 16/12/2019 09:22

240p target price for me

[bamboo2] 14/12/2019 17:22

I'd suggest further contract wins might not neccesarily be a good thing. I have a contact with experience of Costain's management of a LA contract. They have mentioned regular very heated meetings between client and contractor. The discontent in these meetings is way beyond that which might normally be expected between fellow professionals.

[bogdan branislov] 14/12/2019 16:51

spooky, as previously mentioned, the real strength of Costain is the long term balance sheet equity growth, the long term earnings growth and the very strong balance sheet per se. When that is linked to such a low cash adjusted forward PE, the case becomes compelling. You are right about HS2 of course, there could be a delay or even a cancellation. HS2 is just under 20% of next year's turnover for Costain. This would trigger some kind of share price reaction no doubt. On the other hand, the general climate for construction is likely to improve significantly next year and the price moves from the likes of MGNS, which is still under priced, is starting to make Costain look remarkably cheap despite the risk of an HS2 set back. Further contract wins should be steady over the next year. I agree that a longer time horizon is needed here, certainly investors should be prepared to wait 18 to 24 months to see the full benefit of a Costain shareholding, although I would be surprised if we did not see some decent gains well before then.

[spooky] 14/12/2019 10:04

Not everything revolves around PEs but i agree with what you are saying. The only issue is one of timing. HS2 stands a good chance of being cancelled and the market will probably use that as an opportunity to mark down the shares again IMO. So you may just need to see through that and take a longer term view, which is exactly what you appear to be doing.

[bogdan branislov] 13/12/2019 14:53

Costain is just under 20% of my total holdings. Given the significant progress of my other holdings both today and in recent weeks, particularly, CSP, MGNS and Fort it is always tempting to abandon Costain and re-deploy into these other undervalued holdings which clearly are showing upward momentum. I am just being honest here, others must have similar thoughts. Of course to do so, even though my other holdings remain significantly under valued would mean I was adopting a form of momentum based investing, chasing price rises. This I will not do. Once an investor begins to chase momentum, even if it involves very undervalued stocks, an impatience sets in, usually leading to chasing momentum more indiscriminately, the whole approach changes, missed momentum opportunities become a source of intense frustration, the investor ends up living on their nerves and fundamentals take second place. Based on expected 2020 earnings, Costain has a forward PE of about 5, nearer to 4 if you cash adjust. The climate for the construction sector is likely to rapidly improve now, the forward PE for Costain in 2021 is likely to be nearer 4, around 3.5 after cash adjustment. Yes, this year has been a set back, but Costain is nowhere near being a distressed company, this year has been more than factored in, the price falls are well over done. As the other quality companies in the sector recover, it will occur to the markets that Costain remains a solid business and is on forward PE ratio that is around a third of similarly dependable companies in the sector - and these other companies will not even have reached a fair price at this point, they will still be quite cheap. We should be able to bag or double bag with Costain from here. Bagging and double bagging is something that I have done a lot of since May 2009, as my SIPP is over 12x up in that period, solely from investment returns. It is often assumed that such returns equate to high risk, not so, I look for high quality, moderate set backs which in the medium to longer term I expect to have no effect on the company's progress and a market that, due to the investing environment and wider sector woes and a high profile sector failure or two, has massively over reacted. All the ingredients are here with Costain, I will remain fully invested and may well further top up my Costain with dividends that come into my SIPP account.

[joeyredeye1] 12/12/2019 20:04

Sophia 1982.
Has a blog in master investor mag. On line and free. Just google it...

[minerve 2] 12/12/2019 15:29

Completely agree bogdan.

[grahamburn] 12/12/2019 14:52

With the reduction in cash this year, there may be further risk to the dividend payout which has already been scaled back at the interim.