viewCostain Group

Costain slides to first half loss after losing arbitration case

The order book remained at £4.2bn, which does not include work on HS2 or on new 'smart motorways'

Costain Group -
Site of the planned HS2 London tunnel

Costain Group PLC (LON:COST) fell to a loss for the first half of 2020 as it took sizeable charges in relation to two delayed contracts.

These exceptional items, announced in recent weeks, were due to being on the wrong side of an arbitration decision over the A465 road-building contract in Wales, plus the mutual termination of the Peterborough & Huntingdon (P&H) contract with National Grid

The infrastructure construction group’s operations, which are focused on transport and utilities contracts, both remained operationally profitable during the first six months of the year.

Adjusted revenue, which includes a share of joint and associated ventures, fell by 8% to £549mln, with operating profit tumbling 73% to £5.7m, in line with the guidance given last month primarily due to delays on contracts and disruption caused by the coronavirus pandemic.

The order book remained at £4.2bn as Costain said it had replaced all the work completed in the first half, having total secured revenue of around £0.9bn for 2021, including formal notice to proceed on the first of its £1bn of HS2 railway work contracts. 

Around £1bn of work as part of the Smart Motorway Alliance programme and other frameworks have not been added to the order book at this stage, which the company said was to ensure “it reflects only those contracts formally awarded and commenced”.

Costain said its management are optimistic the resolution process will enable the company to recover the £42mln of P&H work undertaken but not yet paid, which will increase to £49.3mln at the end of the work.  

'House' broker Liberum said the results were in line with guidance and it is now upping its full-year sales forecast to £1.08bn due to the resilience in Transportation, though earnings estimates are adjusted to reflect lower expected profits at Natural Resources.

Quick facts: Costain Group

Price: 48.9 GBX

Market: LSE
Market Cap: £131.98 m

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