Costain Group PLC (LON:COST) expects profit to fall by as much as 27% for the year as project delays mean revenue will be lower than previously estimated.
Shares plunged 39% to 186p in morning trading.
Contract delays
The infrastructure services firm said it has seen a number of delays to the timing of contract start dates and new awards including the M6 Smart Motorway, Preston distributor road and HS2 Southern Section railway main works.
READ: United Utilities awards first maintenance outsourcing contract to Costain
The group was also hit by the Welsh Government’s decision to cancel the construction of the M4 relief road around Newport due to its costs and impact on the environment.
As a result, revenue for the 2019 full year will be lower than previously anticipated and underlying operating profit for the full year is expected to be in the range of £38.0mln to £42.0mln, down from £52.5mln last year.
Despite the contract delays, trading in the first half is in line with expectations. New orders secured during the period include a contract for the A19 road project and awards with water companies Severn Trent Water, United Utilities and Yorkshire Water.
However, the first-half results will include a one-off charge of £9.8mln to cover cost of fixing the roof at the Diamond Light Source synchrotron science facility that the company constructed. The sub-contractor who installed the roof would have carried out the remedial works but went into administration in November 2017.
Order book grows
Costain said it has secured £1.1bn in revenue to date and its operating divisions are expected to trade within the target margin range for the year. Revenue secured for the 2020 fiscal year is £900mln, compared to £850mln the same time a year ago.
The order book stands at £4.2bn, up from £3.7bn in June last year.
"Despite delays to the timing of certain contract start dates and new awards, our markets are strong, as evidenced by the breadth of our new contract awards in the first half,” said chief executive Alex Vaughan.
"We have a strong balance sheet, profitable operations and a broad range of capabilities to support the growth of the business. Costain is well placed to secure the opportunities ahead of us."
Liberum cuts target price
Liberum kept a 'buy' rating but slashed its target price to 350p from 545p as it reduced its earnings per share forecast for 2019 and 2020 by 33% and 29%, respectively.
"We assume that the dividend is reduced in line with earnings," the broker said.
Liberum said the market backdrop is challenging but thinks the long term prospects are still good for UK infrastructure and a strong order book suggests market share gains, particularly in water.