- First half revenues rise almost 20%
- High level of contract bid activity during the period
- Dividends remain on hold
Infrastructure group Costain (COST) delivered a positive first half trading update and maintained its full year outlook, sending the shares up 4% to 41p.
Investors were even prepared to overlook the lack of dividends as the firm said it preferred to focus for now on increasing its cash reserves and strengthening its balance sheet.
GROWTH PHASE
Group revenue for the six months to June rose 19.5% to £665 million thanks to an increased workload and inflation-linked price increases built into its contracts.
Operating profits climbed 22% to £14 million, in line with management expectations, as higher volumes and an improved mix of business was partially offset by increased investment in systems and increased contract bid activity.
The firm, which operates in four key markets - defence, energy, transport and water - took an aggressive approach to contract bidding in the first half with a ‘very high level of activity’, particularly in transport.
Decisions on contract awards are expected during the second half of this year and the first half of next year.
‘Despite material availability and inflation challenges, we have managed the supply chain pressures effectively, while delivering a robust operational performance with new contracts being won on attractive commercial terms with appropriate risk,’ said chief executive Alex Vaughan.
‘While we remain mindful of the macro-economic backdrop, we are pleased with the quality and scale of our order book, including secured multi-year infrastructure programmes, the volume of preferred bidder work and the additional long-term framework contracts which will deliver continued progress in 2023 and beyond,’ added Vaughan.
FOCUS ON CASH
At the end of June, the firm had around £560 million or 90% of its expected contract revenues secured for the second half, including a ‘broadening mix’ of higher-margin consultancy-led services, and a total order book of £2.7 billion.
It also finished the period with net cash of £95.9 million and borrowings of £36 million together with £88.5 million of outstanding bonds.
The firm restated its commitment to a balanced approach between investing for growth, maintaining a strong balance sheet and returning cash to shareholders.
However, given the significant increase in contract bid activity in the first half, for the time being it is focused on increasing its cash balance rather than paying dividends although it said it would resume payouts ‘at the appropriate time’.
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