Shares are up 34% since Brexit
Companies: Costain Group PLC
Costain announced an upbeat Half-year Report this morning highlighting growing revenues, profit, and dividend. It confirmed high earnings visibility within the record orderbook and the changing nature of Costain's service offering.
Revenue increased 27% to £791.4m (1H15: £621.1m), underlying operating profit rose 21% to £15.8m (1H15: £13.1m), the order book reached a record £3.9 billion, up 5% on June 2015.
Over 90% of the order book is repeat business giving strong earnings visibility, and the type of service offering is changing rapidly, with 25% of head count now in consultancy and advisory roles.
Net cash is down to £69.2m (2015: £126.8m) primarily on the £36m Rhead group acquisition and working capital increases and the Interim dividend rose 15% to 4.3p/shr.
"Following the decision in June to leave the EU, and the resulting political and economic uncertainty, there has to date been no impact on Costain and it is still too early to predict longer-term outcomes."
Costain secured over £700m of new contract awards and extensions during 1H16. These awards meant its record year-end order book of £3.9bn is maintained, 5% above the £3.7bn recorded at 30 June 2015. In keeping with previous announcements, Costain's long-term customer relationships again ensures that over 90% of the order book is repeat business. This is evident in current visibility of revenues in the next few years:
"The order book also provides good long-term visibility with over £1.0 billion of revenue secured for 2017 (2015: over £950 million secured for 2016), and £2.2 billion secured for 2018 and beyond."
The August 2015 acquisition of Rhead Group for £36m already appears to be contributing well:
"The business has been fully integrated into Costain and is performing well. It has allowed us to secure additional programme management appointments such as the River Humber pipeline contract for National Grid."
Post period end (6 July 2016), Costain announced the acquisition of Simulation Systems for £17m. SSL provides technology based solutions, primarily in the highways sector:
"The full integration of SSL into the Group within the Infrastructure division has commenced and will be completed by the end of the year. It is expected that the acquisition will be earnings enhancing from 2017."
Costain targets ongoing dividend cover of around two times earnings. The 15% increased interim dividend of 4.3 pence per share (2015: 3.75 pence per share) is therefore broadly consistent with the 23% increase in adjusted EPS and 13% increase in reported EPS.
Andrew Wyllie CBE, Chief Executive, commented:
"We have delivered another strong performance in the first half of the year, with a 21% increase in underlying operating profit, and our order book is at a record level. The dividend has been increased 15% in line with our progressive policy.
These are exciting times as billions of pounds are being spent upgrading and renewing the country's energy, water and transportation infrastructure.
There is a revolution in the deployment of technology-led innovative solutions to meet the increasingly complex requirements of our national infrastructure needs, and we are continuing to rapidly transform the Costain business to be at the heart of the opportunity this presents.
Costain remains on course to deliver a result for the year in line with the Board's expectations."
