Costain Share Discussion Threads

[hamhamham1] 25/8/2023 15:44

Nice and steady rise :)

[thags] 25/8/2023 14:50

STT what gems have you come across during your DD. please share some tickers, you can never cover all areas yourself so its always good to hear new ideas...

[grahamburn] 25/8/2023 13:57

Headline, first para, concluding 2 paras and final recommendation from Tempus in Times (plenty of known detail in between):

Costain, the builders’ ugly duckling, may fly again

There is nothing like the whiff of a dividend to set investors’ adrenaline pumping, even from, well, a mixed set of results. That is what the builder Costain delivered on Wednesday, and the package has been well received since. The shares jumped from 46½p on Tuesday — ahead of the official announcement — to nearly 53p at one stage yesterday. They are coming out of intensive care, where they have lain since the pandemic, so it may be time to examine the company anew.

So there is plenty going on, and signs that the current management is getting to grips with the headaches that have plagued the group in recent years. However, the comparison with the near-rival Balfour Beatty is instructive: both are in HS2, but Balfour is valued by the stock market at ten times Costain, on revenues five times larger and much more widely spread, including to the US. Balfour has paid dividends through and since Covid. But this is a reverse beauty parade. It begins to look increasingly that Costain, the ugly duckling, has been shamefully neglected by the stock market, leaving the share price appearing anomalous and set for recovery.

On the back of pre-tax profits rising from £40 million-or-so this year, they should get close to £50 million for 2025. At current levels, the shares are trading on less than four times earnings two years hence, while the dividend yield is set to rise to about 2.8 per cent. That p/e ratio must surely blossom.

ADVICE Buy
WHY Unjustifiably overlooked after a long period in the doldrums

[dickbush] 25/8/2023 13:11

Apologies if someone has already pointed this out but there is a very positive write-up of Costain in the Times today. Looking for growth in earnings again in 2024 and 2025 and a revaluation of the earnings.

[chelseamann] 25/8/2023 11:43

Oooops wasn't meaning to dis the Cost and big up the CF.....happy to keep it my little secret.....Cost is my John Miles share equivalent.....it was my first love (1987 had some when I worked for them as a young puppy). Recently bought back in at 44p and lack the patience to stay the course as there are too many sweets in the shop

[catabrit] 25/8/2023 11:27

C’mon Chelsea. We ruin our credibility a bit if we mention other unrelated names in a thread. Who cares about Card Factory? That’s twice you’ve mentioned them. I have a couple of other holdings outside of COST and you won’t see me talking about them on here. Nobody cares! If Card is a bargain, people will discover it!

[chelseamann] 25/8/2023 11:07

Just wish they would announce news about the dividend ......my money has other places to be (costain i think will be a slow burner in the upwards direction so moving to Card Factory for a bit)

[owenski] 25/8/2023 10:11

2020 fund raise of 100m was at 60p, still below this and business is improving.

[pinemartin9] 25/8/2023 09:51

Unless those bag holders see value now and decide to hold. Why sell now? Quite the opposite. Now is the time to buy.

[thags] 25/8/2023 09:48

I believe a lot of people are bagholding this so will take time for them to offload upto 60p. once it gets above that level then hopefully we should be left with more long term holders who see the true value in this FCF generating no debt business with a MC equal to cash. you don't get many of these nowadays

[pinemartin9] 25/8/2023 09:39

Golden cross fully formed. All moving averages (200, 50, 10) trending up. Increase in volumes over last 4 positive trading days. Press coverage. Derisked fundamentals. I'm the most bullish I have been for a long time here. Weekend press coverage could help. Let's hope for some tipsters like Robbie Burns buying in. That would really up the ante.

Fundamentals and increase in margin look very good here. Happy holding this. I'm massively overweight in this, 16.4% of my portfolio at today's prices. This has a big impact for me.

[catabrit] 25/8/2023 09:14

Agreed with the re rating and as stressed previously it started about a year ago. We will have bumps along the way and a lot will trade this and jump ship once technicals are breached (60p) but I’m holding mine for the margin expansion as I think we’ll rocket then.

Interestingly, Costain has been written-up twice in The Times in the last 24hrs.

[dickbush] 25/8/2023 09:02

Many thanks, value hound. A nice find which seems to be helping the cause.

[casholaa] 25/8/2023 08:57

About time.

[thags] 25/8/2023 08:52

I watched the investor meet company podcast on youtube yesterday with Alex and Helen being interviewed. It was on the whole positive with a lot of your questions placed to them. It appears to be a waiting game for the market to re-rate given the cash balance. they are guiding towards a net margin of 4.5% or so in the next couple of years focusing on consultancy work of higher margin. Hopefully they can get enough work and at a higher margin to get things going again

[pinemartin9] 25/8/2023 08:38

Here is the start of the rerating. Sit tight peeps!

[thags] 24/8/2023 20:36

Ok STT, what ideas do you have for long trades or undervalued plays which you have been following on companies and sector newsflows. I'd like to hear some ideas for a change than people going back and forth with exchanges

[thags] 24/8/2023 19:34

One thing that annoys me about these forums which I primarily use for DD and trade ideas is when certain people de-ramp a stock for whatever motive they have. Sikhthetech I understand you're a trader more chart biased but can you please not turn this forum into a dirt slinging arena like so many other ones have become like centamin and nanoco. Let's leave it purely civil and constructive

[sikhthetech] 24/8/2023 19:09

valuehound,
Thanks for the Master Investor article.


From the article - Joe Brent, Liberum, company's broker view:

"He even sees a 1.13p per share dividend this year "

So that's 2.2% yield for this year, fy2023, if/when a dividend is announced!!


"For the current year to end December he has estimates out for a slight dip in sales to £1.37bn (£1.42bn), while he has an increased pre-tax profit figure of £41.0m"

Pre-tax profit of only £41m on £1.37bln sales, obviously because of the minute margins


"Brokers™ Views a Buy With A Target Price Of 80p

More to the point, as I mentioned before, why hasn't the COMPANY broker, who you'd expect to be positive anyway, upped their target price?.
They've quoted 80p for years. Didn't reach it before, so why should they reach it this time?


Anything from Peel Hunt? They still appear to have a 50p target!!.



sikhthetech - 11 May 2023 - 12:24:37 - 2799 of 3085 Costain - COST
Liberum, the house broker, have had a 'buy' recommendation for years, so it's nothing new, is it?
<...>


As the house broker, you'd expect them to be positive
... lots of could, should, assume, maybes, ifs.



From MI:
"A correction in price back up to the 62p achieved in late April this year, looks more than achievable."
Possible, given they reached that in April before falling back.

[boozey] 24/8/2023 17:46

Any mention of buybacks on the call?

[casholaa] 24/8/2023 16:49

Excellent piece.

[value hound] 24/8/2023 16:33

From Master Investor FWIW... (but it seems a surprisingly modest target price???)

Costain Group Is Looking Far Too Cheaply Rated
It is not the latest Trading Update that inspires to push the shares of Costain Group (LON:COST) the construction and support services business.

Instead, it is the incredibly low price-to earnings ratio of its shares.

Normally investors would dismiss such low p.e. stocks because they would have an instant view that the rating is a foreboding of poor times to come.

But not so in the case of this smart infrastructure solutions provider to the UK transportation, energy, water, and the defence markets.

The Business

The Maidenhead, Berkshire-based group has a description out for its business stating that it helps to improve people’s lives by creating connected, sustainable infrastructure that enables people and the planet to thrive.

It shapes, creates and delivers pioneering solutions that transform the performance of the infrastructure ecosystem across the UK’s transport, energy, water, and defence markets.

The 158-year old group, which has some 3,500 employees, is organised around its customers anticipating and solving their challenges and helping to improve performance, by bringing together its unique mix of construction, consulting and digital experts the company engineers and delivers sustainable, efficient and practical solutions.

The company operates through two segments, Transportation and Natural Resources.

The Transportation segment operates in the road, rail, and integrated transport markets. (73.6% of 2022 sales)

The Natural Resources segment operates in the water, energy, and defense markets. (26.4% of 2022 sales)

It offers consultancy and advisory, digital technology, climate change, and complex program delivery solutions and services.

Recent Financing Facilities Agreement

In late July the £148m capitalised company announced that it had successfully concluded negotiations with its bank and surety facility providers to refinance a new three-year agreement of its bank and bonding facilities.

The new facilities agreement to September 2026 comprises an £85m sustainability-linked revolving credit facility, and surety and bank bonding facilities totalling £270m, with the reduction in facilities reflecting the group’s positive cash generation and cash position.

The Interim Results

Yesterday the group reported its results for the six months to end June showing almost standstill revenues at £664.4m (£665.2m), while the adjusted pre-tax profit of £15.9m was a massive uplift from the previous year’s first half loss of £7.4m.

Even the Interim earnings were impressive at 4.4p per share.

The company’s performance in the first half demonstrates the strength and resilience of its business, with an increase in adjusted operating profit supported by the robust growth in Natural Resources, resilience in Transportation and continued positive cash generation.

Management Comment

CEO Alex Vaughan stated that:

“There remains a positive outlook across our markets, while recognising the short-term rephasing of the government’s transport spending.

We expect that the sectoral growth we have seen in Natural Resources, together with the rephasing and rescoping of some infrastructure projects in Rail and Road to continue for the remainder of the year and into 2024.

While we are mindful of the macro-economic backdrop, recognising the timing of customer procurement cycles, the quality of our secured and preferred bidder work gives us good visibility on future revenue, with more than 90% of revenue secured for the remainder of 2023.

Our expectations for 2023 remain unchanged and we continue to be confident in the Group’s long-term prospects.”

The Equity

There are some 277m shares in issue.

The larger holders include ASGC Construction (15.06%), Ennismore Fund management (6.74%), JO Hambros Capital Management (6.66%), Gresham House Asset Management (5.43%), KBI Global Investors (4.59%), FIL Investment Advisors (2.96%), Hargreaves Lansdown Asset Management (2.74%), Amundi Asset Management (2.64%) and Artemis Investment Management (1.95%).

Brokers’ Views – Buy With A Target Price Of 80p
Analyst Joe Brent at Liberum Capital is very bullish about the group, its low rating and its future prospects.

For the current year to end December he has estimates out for a slight dip in sales to £1.37bn (£1.42bn), while he has an increased pre-tax profit figure of £41.0m (£34.2m), lifting earnings up to 11.30p (9.83p) per share. He even sees a 1.13p per share dividend this year against nil previously.

For next year he has £1.25bn sales, £45.0m profits, 12.12p earnings and a 1.21p dividend.

Jumping ahead for the year to end December 2025 Brent has forecasts of £1.29bn revenues, £49.8m profits, 13.39p earnings and a 1.34p dividend.

Brent is predicting net cash at the 2023-year end of £135m (£124m), then £165m in 2024 and £183m in 2025.

Based on those estimates it is understandable why the analyst has such a strong 80p price objective for the shares.

Across a consensus of four analysts who follow the company the Average Target Price is 73p for the shares, with the Highest Price Target being 102p.

My View – A Price Of 62p Looks Achievable

The group’s Order Book at end June was a massive £2.5bn, with followers expecting some big order advances in the second half year.

Even though I have previously set two Target prices for this group’s shares, with neither of them performing satisfactorily, I still persist in stating that I really feel that this group’s shares are ridiculously low in rating and value.

In fact, I feel that they are too low to be ignored by any investor looking for the UK to correct its economy and its infrastructure too.

Buying Costain shares, at 50p, puts them out on just 4.4 times pe ratio for 2023 and a mere 4.1 times the 2024 estimate.

A correction in price back up to the 62p achieved in late April this year, looks more than achievable.

[sikhthetech] 24/8/2023 14:01

Catabrit,

"construction, not infra. Big distinction."

Construction/Infrastructure are linked. They get impacted when UK spending slows down.

Costain already said profits are down. Higher interest rates help as they gain more interest with cash in the bank but the same higher interest rates slow down the economy and spending.

The govn is reducing it's spending. Look at my comments on Housebuilders (yes different) and how that sector would be impacted by govn support/spending ending and it has.