Costain Group plc (lon:cost)
Costain – Pretty Much A Four Year Low

Costain Group plc Financials

ItemCurrent PeriodPrevious Period
Period12 Months12 Months
Adjusted Earnings
Adjusted EBITDA
Statutory Profit£41m£34m
Adjusted Profit
Total Debt
Net Debt(£189m)£61m

Commentary History
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Costain Group plc Share Price
Grade:No grade has been assigned to this company
Title: Costain – Pretty Much A Four Year Low
Company: COST - Costain Group plc
Share Price Then: 161p
Author: Ian Smith
Date: Mon 09 Dec 2019
Comments: Costain had a big share drop price in June 2019 from 300p down to 170p and another drop today removing a slight recovery.

They are in dispute with the Welsh government over a road contract, converting part of the A465 to a dual carriageway. Initially budgeted at £220m it is now expected to be £54m over budget. Completion is expected by the H1 2021 and the work will be completed.

This is expected to drop the year end profits by around £20m to around £17m, this is tiny at around 2% of turnover whereas it was expecting about 4.5% which is still a very very slim margin.

On the plus side Bank borrowings seem surprisingly small for the sector at around £90m of bank debt, made up of £31m of a £131m Revolving Credit Facility and a £60m loan, this is due June 2022. There are also bonds of up to £320m of which £100m had been taken up by Dec 2018.
The group has about £4.2bn in orders, but about £1.1bn is HS2 related so this has to be regarded as fairly uncertain.

Will Boris Johnson decide that the money is better spent on those Labour constituencies that voted Tory and got him back into power than on a project that may be seen as London centric? Yet even if HS2 is cancelled it is eminently possible that the same amount will be spent on other rail projects in the midlands and the north allowing Costain to replace the lost HS2 business.

For me the big problem is that the company is generally not able to generate business by itself, it is a supplier of large and man-power heavy projects which are dependent upon customers being willing to spend.

Given how difficult it is for an outsider to understand construction company accounts the debt is worrying, not by its absolute amount but can it be repaid and is it the number that a laymen would recognise as being the “real” number?

Seeing that there appears to be a huge amount of cash in the bank is easy, but working out where it is supposed to go is another matter.
Read Count: 224/10101

Buy/No Buy In A Nutshell
NegativesHuge turnover on large construction projects and tiny profit margins which seems to result in no profits. Recent share issue.
PositivesPart of HS2 and may be attractive as a company that still has a large order book as many other companies crash after COVID.
Initial Review Price44.5p
Last Review Price45.5p
Last Review Date08-Sep-2020
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