Costain Group plc (lon:cost)
Costain – Huge Turnover And No Profits.


ItemCurrent PeriodPrevious Period
Period12 Months12 Months
Adjusted Earnings
Adjusted EBITDA
Statutory Profit(£7m)(£3m)
Adjusted Profit£15m£50m
Total Debt£116m£70m
Net Debt(£65m)(£118m)
Title: Costain – Huge Turnover And No Profits.
Company: COST - Costain Group plc
Share Price Then: 44.5p
Author: Ian Smith
Date: Tue 08 Sep 2020
Comments: In May 2020 Costain raised £100m by issuing new 166m new shares at 60p roughly 20% less than the market price as an 80/20 accelerated/open offer.

The funding is needed for general corporate purposes when one considers that The Group has a strong order book of £4.2 billion (including £1.1 billion relating to HS2) as at 31 December 2019 this is a seems to be a pretty small amount of money in that context.

Until you realise that the company seems top operate on low single digit profit margins 2%-4% putting them almost into the same category as supermarkets.

The last share issue was for £75m in 2014 at 225p a share and the share price traded between 300p and 400p since 2015 up until Jun 2019 when it dropped by about a third after a trading update.

The current market cap is £126m and pre covid around £400m
HS2 has now started and it does seem to enjoy current government support and as it is bound to overrun the budget we need to understand who will fund this overrun?

The A465 road contract seems to have them with a £45m bill

There is the National Grid Peterborough and Huntington contract awarded in 2016 which has also been exited. What the cost of this will be in either penalties or lost payments is unclear The termination agreement incorporates a legal process over the next 18 months to agree up to £80 million of identified compensation events, recover costs to date and eliminate a potential liability to National Grid for completing the works. the company has £49m due from this contract which will be part of this discussion.

What is clear is the question of is Costain a gravy train for everybody but the share holders seems valid?
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Previous Commentaries On Costain Group plc
Date Share Price Author Commentary
Mon 09 Dec 2019161pIan Smith

Costain – Pretty Much A Four Year Low

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.