Firm benefitting from focus on consultancy work
Costain is eyeing margins of 5% from 2026 as the firm says it is beginning to reap the benefits of focusing on better earning consultancy work and concentrating on complex infrastructure jobs.
Announcing new margin milestones, chief executive Alex Vaughan said it was looking at an operating margin next year of 3.5% and 4.5% in 2025 with the firm targeting 5% from 2026 onwards.
In its 2022 results published this morning, the firm said operating margins for last year were 2.5% but Vaughan said doubling that number was possible in the next few years.
He added: 鈥淲e can do so by operational improvements, broadening the mix of what we do and focusing on those sectors where the margins are higher such as consultancy work in defence and energy.
鈥淲e have chosen to focus on those markets where non-discretionary investment has to be made. I鈥檓 pleased with the progress we are making in consultancy and it鈥檚 growing and significant part of the business.鈥�
As well as digging tunnels for HS2, the firm is also a delivery assurance partner on the A303 road upgrade and a design partner on several schemes for Transport for London.
Costain鈥檚 revenue last year was up 21% to 拢1.4bn with pre-tax profit up 30% to 拢32.8m from a 拢13.3m loss last time with net cash up from 拢119m to 拢124m. Its order book was 拢2.8bn, down from 拢3.4bn at the end of 2021, but the 2022 year-end number was up 拢100,000 on the half-year figure.
The firm also gave an update on dividend payments, saying it 鈥渞ecognises the importance of dividends to shareholders and remains committed to returning to dividend payments when appropriate鈥�.
Analysts were buoyed by the news on margins with a note from broker Liberum saying the 4.5% figure would be 鈥渕arket leading鈥� while in an update Investec said: 鈥淭he positive development of the business mix sees management guiding towards a return to dividend payments with margin progression and increasing cash generation over for the next three years.鈥�
Liberum and Investec are pencilling in revenue this year of 拢1.3bn with pre-tax profit slated to be between 拢38m and 拢40m.
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