Shares in infrastructure group Costain (COST) jumped as much as 10% on plans to increase dividends and buy back shares. The infrastructure group also confirmed FY25 trading was positive and earnings would be in line with expectations.
| Share price: 175p (+8%) | PE: 13x |
| Market cap: £470m | Yield: 1.7% |
MORE CONTRACT WINS
Costain confirmed revenue and operating profit for 2025 would meet forecasts. The current consensus is for revenue of £1.13 billion, profit of £46.4 million and EPS of 14p.
The firm said H2 revenue was similar to H1’s £525 million as it continued to secure ‘strong’ work volumes. Costain is active across the transport, water, energy and defence markets, with a focus on sustainable solutions.
Notable H2 contract wins include the role of Utilities Delivery Partner for Sellafield worth up to £1 billion over 15 years. Meanwhile, FY25 closing net cash was £190 million, ahead of market estimates of £171 million.
‘It has been another positive year for Costain, with increased profitability, strong cash generation and further momentum in securing high-quality work across our chosen growth markets’, said CEO Alex Vaughan.
INCREASED SHAREHOLDER RETURNS
After reviewing its pension scheme, and in light of its financial strength, the firm has scrapped the previous dividend parity arrangement. In addition, no further cash contributions will be need until January 2031.
Therefore, consistent with its capital allocation strategy, the firm has decided to increase cash returns to shareholder. First, assuming dividend cover of 3 times, the FY26 payout will almost double compared with FY25.
Second, the firm will return £20 million to shareholders this year via a share buyback. Details of the dividend and buyback will be given with the FY results in March.
We’ve said it before and we’ll say it again, infrastructure is where it’s at in the UK construction sector. All those investors waiting for a turn in the housing market are missing the plot.
Infrastructure spending this year is projected to grow around 4% to 4.5% according to the Construction Products Association. There are several landmark projects outstanding which require ongoing work, such as HS2.
In addition, the National Highways Road Investment Strategy2 requires major upgrades to strategic networks. And projects like the A66 Northern Trans-Pennine upgrade and Lower Thames Crossing are multi-year contracts.
The new UK Infrastructure Pipeline highlights more than £500 billion of public and private projects over the next decade. It’s firms like Costain which are set to reap the benefits, not housebuilders.
Read the press release here: https://www.costain.com/investors/
Disclaimer: This content is for information only and is not investment advice. Always do your own research before investing. Click here to see full disclaimer.
