Costain Share Discussion Threads

[tjbird] 07/4/2020 10:50

heading higher spike coming

[techair] 07/4/2020 08:39

Buywell said FTSE going to 5000 this week - doh

[tjbird] 07/4/2020 08:38

Mega recovery play here

[buywell3] 07/4/2020 05:09

buywell has also been negative on KIE to show no bias

Consistantly negative on both for the last year , ie from first post






buywell3 - 08 Oct 2019 - 18:16:59 - 5939 of 6145 UNDERVALUED GOOD recovery play.. COSTAIN - COST


Been a bad day today for many stocks

Construction sector is now starting to get hit just like Retail sector.

BIG debts in both are causing Banks and owners of their debts to reconsider things IMO

[rounder2] 06/4/2020 22:32

Any thoughts on the fund raise ?

Quantity / offer price. ?

[elsa7878] 06/4/2020 20:32

During the course of the contract, there is often significant change to the scope of the works and this has an impact on the programme and costs on the contract. The amount of resulting compensation events can be substantial and at any time these are often not fully agreed with the customer due to the timing and requirements of the contractual process. Also many will relate to work yet to be undertaken or completed. Therefore, assessments are based on an estimate of the potential cost impact of the compensation events.

The Group's five largest compensation events positions at the year end are summarised in aggregate below. The most significant amounts in 2019 relate to the A465 and Peterborough and Huntingdon contracts.


2019 2018
GBPm GBPm
---------------------------------------------- -------- --------

Overall contract value 1,334.0 1,376.6
Revenue in year 281.3 260.1

Total estimated end of contract compensation
events 472.1 372.2
Total estimated unagreed end of contract
compensation events 238.6 247.2

Total unagreed compensation events valued
at year end 45.7 39.5
---------------------------------------------- -------- --------

The financial impact of changes to the value of compensation events finally agreed will depend on the precise terms of the contract and the interaction with incentive arrangements, such pain/gain mechanisms and bonus or KPI arrangements, and any assessments made about costs disallowed under the contract. If the estimated value of the unagreed end of contract compensation events in relation to the currently estimated change in these contracts was increased or decreased by 10 per cent, the impact on the financial results over the life of the contract could be an increase or decrease of up to GBP15.0 million (2018: up to GBP13.0 million). Additional compensation events for further change may also arise over the remaining contract period.

Our contract for the upgrade of National Grid's Peterborough and Huntingdon compressor stations has experienced significant change and additional scope which has impacted on the forecast target cost and schedule for the completion of the works, expected in 2021. We, and the client, are working to an agreed project level escalation process that includes a requirement to demonstrate our entitlement regarding the compensation events. Costs on the project have doubled due to additional scope and at this stage only a limited proportion of the associated GBP90 million reforecast outturn cost has been formally agreed. Supported by external advice, we believe that we have strong entitlement to recover the costs to date and remaining costs to be incurred over the next 18 months.

[majwandco] 31/3/2020 22:04

(As recently posted on LSE)

Costain’s share price by all accounts has had an awful run this last couple of months - Overall, the drop is justified, albeit I believe massively oversold. Why?
The long-term positives

• Equity Raise will only be offered on the basis that a 6-7% profit margin can be proved viable to investors. A £1billion/year revenue gives a target profit of £60m/£70m – For a company valued currently at £38m, that’s impressive. (see below for more details)

• A conservative P/E of 10 on the above terms would value the company at circa £600m. Even if the £100m equity is raised at current share price of 35p, that would mean 285m new shares. Yes- Almost 3 new shares for every 1 held. Yet at a market cap of £600m being nearly 16x the current price. It still represents a share price in the region of £1.50 which would be a 300%+ increase on todays share price.

• 70% of the workforce still operating throughout Lockdown (See latest RNS) meaning profits will take a limited hit compared to other sectors. This is due to the focus on remote working and the advanced IT infrastructure the company possesses.

• £27billion to be in invested in infrastructure by the Government over the next 5 years. Costain are a leader in this sector and stand to benefit from this massively.

• Collaborates with UK Government and Blue Chip Clients only

• A total order book of over £4billion

• £300m of work won in February ’20 alone www. constructionenquirer.com/2020/03/11/costain-tops-february-contracts-league/

• Potential additional profits gathered from A465 project. (see below)
Looking at the most recent results, Profit was down from £40m in 2018 to a £6.6m loss in 2019, a £46.6 deficit, but that was due to a number of one-off events:

1. £20m loss due to arbitration costs resulting from a dispute on the A465 in Wales. (more information on that below)

2. £9.7m loss due to issues relating to a roof at the National Synchrotron scientific laboratory in Oxfordshire.

3. 16m loss due to Contract losses and delays.
4. 15m less net cash due to its commitment to fairer payment practices (reducing payment terms for Sub-Contractors). This transition is very much a one off financial ‘hit’.

The above totals £60.7m, if any of, or a number of the above were avoided then the profits would have been substantially more than what was eventually realised. Granted all/most of the above are the fault of the Company, however these were significant one-off events rather than systemic consistent failures. BP’s oil spill in 2010 cost the company billions, profits were destroyed, but it didn’t turn them into a bad company because of it.

Costain communicated that they wished to release much of the bad news within a concentrated timeframe. Ie. (Poor) End of year results, £100 equity raise, then came the unprecedented effect of Covid-19. I would rather this than a consistent drip feed of negative news if a strong, steady Share Price rise is to be realised.

The Equity Raise

Yes the lack of any information at all was/is extremely frustrating, it seems poorly executed by the board, but the facts remain:

In order for this equity raise to take place it was noted that the company would need to demonstrate to its investors that it could move towards a 6-7% profit margin. (See link below)

www. constructionnews.co.uk/civils/final-cost-of-costains-a465-project-remains-uncertain-20-02-2020/


If the equity raise takes place, Equity Raise only provided on the basis of a targeted 6-7% profit margin. At £1billion/year revenue gives a target profit of £60m/£70m – For a company valued currently at £38m, that’s outlines how undervalued the current MC will be.

So for me, if the equity raise does take place, yes there will be dilution, but it is also huge resounding positive that Costain’s transition to its ‘Leading Edge Strategy’

(Page 18 www. costain.com/media/598758/cmd-presentation-for-website.pdf ) is viable.

Profits locked in the A465 - £80m?

The A465 was/is an extremely complex project which has resulted in a number of disputes with the Welsh Government. The only documented result thus far is a £20m loss to Costain which has obviously negatively affected the SP, however there is a potential HUGE upside coming Costain’s way if the below is to be believed:

“as of November 2019 the Welsh government has put aside an £80.5m to cover expected liabilities for adjudications that have been ruled in favour of the contractor”


www. constructionnews.co.uk/civils/final-cost-of-costains-a465-project-remains-uncertain-20-02-2020/

A positive adjudication of this nature would have a substantial impact on the share price.

Costain may not be primed to make the day traders their quick 40%, it may take a period of time to realise it’s true potential. There are multiple events that could change the landscape of the company overnight. Plus when the world reaches a stage where Covid-19 is a dim and distant memory, the government will be desperate to kick start the economy with heavy investment in the UK infrastructure, Costain will be ready to assist.

[jimbox1] 31/3/2020 08:42

It is extremely irritating that the directors have not disclosed the terms of the fund raising. We have no idea of the impact on number of shares and the extent of dilution. I suspect that a large part of the fall in the Costain share price is due to the absence of the key fundraising information rather than the COVID-19 impact.

[cerrito] 31/3/2020 08:10

That is my reading ip.
I am going on the basis that the 30pc SLT salary cut was for PR purposes - and very sensible too-rather than a need to conserve cash per se and note no mention of the supply chain suggesting not an issue.

[imastu pidgitaswell] 31/3/2020 08:00

I think more likely they are not getting engagement - it is not easy to progress anything that is not BAU in this environment. All banks and institutions are putting new stuff and applications on hold for now.

Watching with interest - while in a bad position, they are nothing like as bad as others, and I do think this could be worth a limited buy and forget for five years (maybe a lot less) play.

[rogerrail] 31/3/2020 07:37

Given todays announcement on the placing , I would guess the placing was already underwritten at a substantially higher level than the current share price when it was first announced? Is that how others see it?

[tricky1992000] 28/3/2020 10:41

This company has a huge history of equity raising.

2014
hxxps://www.costain.com/news/news-releases/proposed-75-million-capital-raising/

2007
Costain in £60m rights issue

and now this new one.

in 2010 they had a consolidation, give it a few years and they might do it again.

And then will they need to capital raise??

[cerrito] 25/3/2020 12:34

A good piece on the Today programme this morning on the confusion as to whether people on construction sites in England should work and of course issues in the supply chain
This will not help COST but they should be able to cope with delays in cash and revenue.

[farrugia] 21/3/2020 16:44

so is costain eligible for loans? not sure if this company is rated by the rating agencies like moody's or standard and poor which would not make it eligible? thoughts?

[sasbod] 20/3/2020 16:04

Markets pricing this company as if it's going under!

[ltcm1] 19/3/2020 18:46

I think this Stdyeddy is a paid poster working for Kier shorters.

Surely the reality is this £350BN loan fund is for meeting payroll and paying rents, keeping the lights on rather than shoring up a dodgy balance sheet.

[minerve 2] 19/3/2020 15:59

"Is it because the BOD have turned out to be not the brightest buttons in the box?"

LOL

[optomistic] 19/3/2020 09:48

Is it because the BOD have turned out to be not the brightest buttons in the box?

[ltcm1] 19/3/2020 09:42

Can anyone tell me why Costain can't cancel the RI and borrow all that they need from the govt fund announced the other day???

There is a poster called Stdyeddy who is claiming Kier can do just this on the Kier board.

[minerve 2] 18/3/2020 12:14

"Minerve what is the bull case here???"

Give me the bull case anywhere ATM.

[ltcm1] 18/3/2020 12:12

Can they not simply get the cash they need from the govt funding pot now???

However if that were the case it would have rocketed yesterday.

Minerve what is the bull case here??? I know you do research your investments well. Good luck with it.

[npp62] 17/3/2020 11:00

Can't get a quote from my broker for a buy... Hargreaves Lansdowne

[zeek] 16/3/2020 22:37

Agree Henley, cant see it going ahead until it stabilises. The board and advisers have been made to look like fools with their timing, hope they learn the lessons. Us shareholders are having to learn it the hard way!