24th Aug 2022 13:12
(Alliance News) - Long-time shareholders of construction firm Costain Group PLC will be hoping that a generally well-received set of interim results on Wednesday will lay the foundations for rebuilding of its stock price.
The Maidenhead, England-based infrastructure contractor was down 0.2% at 39.41 pence near midday on Wednesday, having initially risen to 43.00p. The shares remain down 38% in the past 12 months, having traded above 63p last August.
They used to be worth a whole lot more.
Back in March 2018, Costain shares were priced at 458p, meaning they have lost more than 90% of their value in the past four years.
Starting in 2019, Costain suffered cash outflow, caused by delays to the start of contracts and new awards. A major road project in Wales was cancelled, and the reversal of an arbitration award in a dispute over another road in Wales left Costain to pick up the tab for costs incurred. More recently, Costain has been in dispute with National Grid PLC over a cancelled contract.
On Wednesday, Costain reported interim profit growth, despite supply chain pressures, and said it expects its order book to grow.
For the six months that ended on June 30, the company said revenue increased by 20% to GBP665.2 million from GBP556.8 million a year earlier, reflecting "primarily volume growth and inflation protection mechanisms within contracts".
Pretax profit increased 23% to GBP11.2 million from GBP9.1 million, even as the operating margin slipped to 1.8% from 2.0%.
"Despite material availability and inflation challenges, we have managed the supply chain pressures effectively, while delivering a robust operational performance with new contracts being won on attractive commercial terms with appropriate risk," said Chief Executive Alex Vaughan.
He added that there was a "very high level" of bidding activity in the period, with award decisions expected later this year and into early 2023.
"While we remain mindful of the macro-economic backdrop, we are pleased with the quality and scale of our order book, including secured multi-year infrastructure programmes, the volume of preferred bidder work and the additional long-term framework contracts which will deliver continued progress in 2023 and beyond," said Vaughan.
Costain's order book stood at GBP2.7 billion as at June 30, down from GBP4.0 billion in December and GBP3.4 billion compared to 2021. The company said this reflected "the timing of major contract bids".
Costain said it expects its full-year order book to strongly increase with upcoming contract award decisions, which are expected in the second half of 2022 and first half of 2023.
Net cash balance amounted to GBP95.9 million as at June 30, down from GBP119.4 million on December 31.
Costain declared no interim dividend, unchanged from last year. It said it will return to dividend payments "at the appropriate time" and that it is currently focussed on investing and increasing its cash balance.
Looking ahead, the company said 2022 adjusted operating profit is expected to show "good growth year-on-year and our expectations are unchanged".
Liberum said Costain's results were in line with the investment bank's estimates.
"Cash generation, which is key, has been excellent and we maintain our FY22 spot net cash (ex leases) estimate of GBP100 million, with possible upside from National Grid," Liberum said.
Trading on a price-to-earnings ratio of 3.8 times based on expected 2023 results, Costain shares "are simply too cheap given GBP100 million of cash on the balance sheet".
At its current price, Costain's market capitalisation is GBP108.4 million. Liberum has a price target on the stock of 80p, double its current level.
By Tom Waite; [email protected]; and Xindi Wei; [email protected]
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