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Once I purchased my favorite FTSE 250 inventory a few years in the past, it wasn’t even within the index. It’s now.
Infrastructure options specialist Costain Group (LSE: COST) stormed again into the FTSE 250 on 2 March after a 20-year absence. It marks a outstanding turnaround for a enterprise that took a proper previous beating. Fortunately, I acquired in comparatively early, shopping for the shares in November 2023. Is it too late to hop on board?
Costain was caught up within the outsourcing disaster that sank Carillion in 2018. The pandemic made issues worse. In 2020 the shares crashed greater than 80% as initiatives stalled and earnings evaporated. A painful £90m loss on two giant street schemes accomplished the rout.
Costain Group shares shoots the lights out
One factor caught my eye within the aftermath. Costain was sitting on a pile of money roughly equal to its market worth. That regarded like each a security web and a springboard. The restoration has been extraordinary. The share worth has surged 345% over three years and virtually 95% over 12 months.
Market cap now sits round £531m, so it’s nonetheless a comparatively small enterprise. That doubtlessly leaves room to develop if momentum continues.
The rally gathered contemporary tempo after yesterday’s (10 March) spectacular 2025 outcomes, with the shares leaping virtually 18%. Costain delivered one other 12 months of sturdy monetary progress throughout water, defence, power, and transport initiatives. The ahead order guide surged 30% to a document £7bn. That’s roughly seven instances annual income of £1.05bn, giving unusually sturdy visibility.
Adjusted working revenue rose 9.3% to £47.1m whereas margins improved to 4.5%. Robust money era has strengthened the steadiness sheet and allowed administration to extend shareholder returns.
The group confirmed a £20m share buyback and lifted its whole dividend to 4.2p for the 12 months. That’s a 75% enhance on the 2024 payout of two.4p (helped by pension funding restrictions being lifted). Now it plans to undertake dividend cowl of 3 times adjusted earnings to maintain payouts sustainable whereas the enterprise expands. The trailing dividend yield stands round 2.11% and analysts anticipate that to rise near 2.5% in 2026.
Valuation nonetheless appears to be like cheap
Regardless of the sturdy run, the valuation nonetheless appears to be like modest. The shares commerce on a price-to-earnings ratio of 13.8. Administration believes efficiency may step up once more later this decade as clients enhance funding in transport, water, and power community infrastructure. Working margins ought to high 5% over time.
Infrastructure contracting at all times carries dangers. Pricing advanced initiatives is troublesome and errors can show expensive. Costain has discovered that the laborious approach. The UK economic system is struggling and authorities funds stay stretched, threatening new infrastructure spend. Income will at all times ebb and circulation relying on when initiatives are awarded and accomplished.
Even so, the document order guide presents encouraging visibility. Momentum is clearly behind the enterprise. I assumed the rally may cool a 12 months in the past, but the shares have powered on. The valuation nonetheless appears to be like cheap and the pipeline of labor is gigantic. I believe Costain continues to be price contemplating. I’m now on the look out for the following huge restoration story.
