-
Adjusted Operating Profit: Increase noted, contributing to strong financial performance.
-
Margins: Growth in margins, aligning with set targets.
-
Adjusted EPS: Strong increase reported.
-
Cash and Balance Sheet Position: Described as very strong.
-
Forward Work Position: Record increase of GBP 1.5 billion, totaling GBP 5.4 billion.
-
Dividend: Doubled due to confidence in growth prospects and strong balance sheet.
Release Date: March 12, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
-
Costain Group PLC (CSGQF) reported a strong financial performance for 2024, with an increase in adjusted operating profit and growth in margins.
-
The company secured a record increase of GBP1.5 billion in its forward work position, now totaling GBP5.4 billion, representing over four years' worth of revenue.
-
Costain Group PLC (CSGQF) doubled its dividend, reflecting the board's confidence in the company's growth prospects and strong balance sheet.
-
The company is well-positioned to benefit from significant investments in transport, water, energy, and defense sectors, with ongoing projects like HS2 and new wins in these areas.
-
The pension scheme is in a healthier state, allowing the company to pause cash contributions and consider options like share buybacks or increased dividends.
-
The economic effects of the budget from last October were not well-received by some market participants, potentially impacting future growth.
-
Exceptional items in 2024 amounted to GBP9.6 million, affecting earnings and the P/E rating, although these costs are expected to be minimal in 2025.
-
The transportation division may not see immediate recovery in 2025 due to the long lead times required for infrastructure design and planning.
-
The company's forward work position includes GBP2.5 billion in preferred bidder status, which carries risks until contracts are fully secured.
-
Some infrastructure-related companies have faced challenges in the rail sector, although Costain Group PLC (CSGQF) has managed to mitigate these by reallocating resources.
Q: Do you feel Costain will be able to continue to grow, considering the effects of the budget from last October? A: Alex Vaughan, CEO, responded that there are significant opportunities for growth across their markets. In transport, the HS2 contract will continue for at least another five years, and water is embarking on a record level of investment. Energy and defense sectors also present substantial opportunities, with most infrastructure investment coming from the private sector.
Q: Can you provide an update on the progress regarding the DA scheme of the pension scheme via buyouts? A: Helen Willis, CFO, stated that the pension scheme is in a healthier position, showing an actuarial surplus. This allowed them to pause cash contributions and consider options like share buybacks. Another annual check is due in March, with results expected in June, which may provide further options for dividends or buybacks.
Q: What exceptional items are likely to be in 2025? A: Helen Willis, CFO, mentioned that the exceptionals in 2024 were related to the last year of their transformation program. Moving forward, they expect minimal exceptionals as they transition to business as usual, with some modest capital expenditures anticipated.
Q: How confident are you in maintaining a progressive dividend given potential economic challenges? A: Helen Willis, CFO, expressed confidence in maintaining a progressive dividend. The company has shown growth in operating profit, strong free cash flow, and a robust balance sheet, supporting their ability to modestly increase dividends over time.
Q: Will the transport division sales in 2025 benefit from delays in 2024? A: Alex Vaughan, CEO, explained that infrastructure projects take time to design and plan. Therefore, significant revenue growth in transportation is expected around 2026-2027, as they prioritize thorough planning and design before execution.
Q: How does the change in green policy by BP and Shell affect Costain's relationship with them? A: Alex Vaughan, CEO, noted that energy is an evolving space, but Costain is well-positioned to capitalize on decarbonization efforts. They are involved in projects like carbon capture and hydrogen with BP, funded by the UK government, and are also working on electrification and nuclear projects.
Q: How much of the forward work position is contracted versus preferred bidder status, and what risks are there? A: Helen Willis, CFO, explained that the forward work position consists of GBP2.9 billion in the order book and GBP2.5 billion in preferred bidder status. The risk profile is favorable, with no fixed-price lump sum contracts, and they are confident in converting preferred bidder status to confirmed contracts.
Q: Are there any notable upcoming contract renewals or new projects that could impact your books? A: Alex Vaughan, CEO, highlighted opportunities in roads and ongoing discussions for new projects. Most significant work in water has been secured, with additional opportunities in reservoirs and frameworks with major clients like Heathrow Airport and Transport for London.
Q: How will you achieve the 5% operating margin target? A: Helen Willis, CFO, stated that the target is achievable through winning the right kind of work, controlling costs, and leveraging operating efficiencies. The construction segment, being the largest, will drive margin improvements, supported by consultancy services and operating leverage.
Q: How do you see the rail sector panning out in the next few years? A: Alex Vaughan, CEO, mentioned that while some companies face challenges in rail, Costain's flexibility in moving personnel across sectors mitigates risks. They see significant opportunities in the next five-year period, particularly in areas like electrification and station enhancements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
