Shares in smart-infrastructure solutions company Costain (COST) languished in early trading after announcing first half year results for the first six months of 2021 with the shares slumping 6.3% lower at 59.3p.
The muted share price response was despite the company returning to profit during the period, and announcing that full year profits would be in line with expectations.
The company reported pre-tax profit of £9.1 million, compared with a prior year loss of £92.3 million as revenues increased 21% to £556 million.
Net cash at the end of June had increased to £113m up from £102.9m at the end of 2020. The company has yet to declare a dividend.
The group has attributed last year’s poor performance to three problem contracts including a charge of £49.3 million in relation to the Peterborough and Huntington Grid gas storage project. The contract was terminated in June last year.
TIGHTER RISK CONTROL
Moving forward the group emphasized it is benefiting from an improved process of contract tendering that has tightened risk controls. This should prevent a recurrence of the difficulties associated with the aforementioned problem contracts that negatively impacted group earnings in 2020.
Another reason for optimism is the growth in the order book. Costain secured contracts worth £333.4m during the first half that contributed to the order book reaching £4 billion. This more constructive growth outlook was also reflected in the 10% increase in the number of employees to 3,300.
There are two additional reasons why investors may become for positive on Costain following today’s numbers. Firstly, Costain is among the big winners from the transport for London framework, securing a spot worth at least £100m on the Surface Transport Infrastructure Construction Framework.
This demonstrates how the group is benefitting from the Government’s commitment to investment in UK infrastructure.
Secondly, from an ESG perspective the Aerospace Technology Institute recently announced that Costain was helping to explore the feasibility of hydrogen fuelled aircraft. Although an unproven technology, this may provide both a new revenue stream and enhance the group’s appeal to ESG focused investors.
Peel Hunt construction analyst Andrew Nussey has a positive view on the shares and believes they will “re-rate as confidence builds in full year forecasts”.
