Infrastructure group Costain (LON:COST) promised investors a ‘step change in performance’ in 2027 and beyond. The firm made the announcement alongside its 1H26 results, sending the shares up 5% in the process.
Step change in 2027
For the six months to June, Costain posted a 3% increase in revenue to £543 million which it said marked ‘a key inflection point’. From hereon in, the group expects ‘a step change in revenue followed by a sustained period of growth’.
Adjusted operating profit for H1 rose 3%, in line with revenue, to £17.3 million, while adjusted EPS rose 3.6% to 5.7p. With £164 million of cash on the balance sheet, the firm doubled its interim dividend to 2p per share.
Key to progress in H1 were new customer wins in target areas such as electricity transmission, reservoirs and rail. The forward work position remained steady at £7 billion providing visibility of 91% for both FY26 and FY27 revenue.
Growth is expected to pick up in H2 compared with H1 driven by water, as the AMP8 moves from design to construction. The firm also has expanded its work at Heathrow Airport, and the M60 road project will also move to the construction phase.
We’ve been championing the infrastructure sector for several years, for two main reasons. First, there is no shortage of public works projects to bid on, and second, the government is a reliable payer.
Costain has been something of a laggard in share price terms until this year, but it’s making up for lost time. Since the start of January the stock is up 45%, outpacing Balfour Beatty (LON:BBY) and Hill & Smith (LON:HILS), which both raised guidance yesterday.
However, if the firm is serious about a ‘step change’ in performance, the shares could have a lot further to run. On our work, earnings have rebased since the pandemic and are on track to grow at 6% per year.
Even with that lowly growth rate, the shares look cheap versus their history. If we have to raise the growth rate, which is the implication, the upside grows with it.
