Costain Takeover Rumours (COST)

Another mention on the Investors Chronicle website today. It is number three in the acquirers multiple screen which highlights cheap stocks with takeover potential.

In my opinion - and I hope I am wrong as I have a lot of money on the line here - the momentum has been lost and I do not anticipate these breaching the 70s again until we learn the results of the pension scheme which are a good 3-4 months' away. The results were solid if unspectacular but like a lot of small cap value stocks the only way to heaven (takeover aside which you can't underwrite) is through self-help i.e. buybacks, hitting margins, boosting free cash flow. If you believe (like the market does) that Costain isn't really that differentiated vs peers why buy it when you can buy the big gorilla (Balfour) which pays a higher dividend yield, is buying back a tonne of stock and offers downside protection via its infrastructure portfolio of investments (1.2bn) plus circa 800m of net cash vs a market cap of 2bn? I think it's going to be a frustrating couple of months.

TBH, any takeover shouldn't be below 150p IMO. And that 150p is where the share price should get to on its own legs over next 24 months anyway.

The pension deficit is under control, only paying 3.3m a year for a few years to plug it, it was at 97% last year, would imagine with markets and interest rates where they are now, the deficit will melt away. Still, they could just plug it in one hit out of the 150m+ they got in the bank, am sure its only about 10-11m deficit? Anyway, the books look good here, personally a takeover for 100-110p could well happen over next 12 months. Let's see, GLA

Hope you're right about the quid by end of March Roguemale1, and although Costain have a lot of history in the middle east I can't see a takeover coming from there, or anywhere else for that matter while the company is trying to make serious changes to the balance of its workload - maybe a year or more from now it might be a target. The "terrible tangle" Costain got into looks to me very similar to the one Laing got themselves into some years ago. Laing were always the "clever" contractor when I was young, doing prestige difficult jobs, and they got too "clever" and over confident ending up taking two huge contracts on dangerous contract terms which effectively finished them. Costain, in those days, were also known as a top rank contractor, so perhaps they fell into the same trap. Recovery periods have always served me well with contractors and I'm fairly confident that the recovery will here.

My birthday is end of March. My opinion currently a quid or a takeover by then after results.... am still worried about a low ball takeover, the UAe boys notwithstanding. We shall see. Have a good weekend all!