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

Costain Group plc Financials

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)

Commentary History
Costain Group plc Share Price
Grade:No grade has been assigned to this company
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?
Read Count/ID: 71/13179

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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