Companies: COST   

Restructured construction and engineering group Costain should command a higher rating, having delivered an emphatic 2007 turnaround and returned to the dividend list for the first time in 17 years.

For the calendar year, losses of £62m turned round to pre-tax profits of £19.8m, enabling chief executive Andrew Wyllie to declare a 0.5p dividend. For the first time since 1990, all group operations made a profit, with highlights including significant profits growth in civil engineering, a return to profit in building and the first profit in six years from the Oil, Gas & Process operations.

Various projects were completed to time and budget, notably the new Eurostar terminus at St Pancras. Management continued to cut costs, actively traded the PFI portfolio for re-investment in bidding for new projects and honed Costain’s focus on work linked to defensive spending programmes in the water, highways and nuclear sectors. Wyllie says he is targeting larger, blue-chip customers (clients range from Tesco and BAA to Thames Water), which increasingly prefer to partner with larger Costain-type contractors on longer-term deals.

Having increased its banking facilities and significantly strengthened its cash position to £133m (almost equal to the current lowly market cap) following a £60m rights issue, Costain has the financial firepower to fuel further growth. Moreover, the shares are inexpensive, trading on a prospective p/e of 7.5, based on 2008 forecast profits and earnings of £23.8m and 2.9p respectively. Given the group’s high quality £1.6bn order book and high levels of repeat business, the shares are a strong buy.

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Costain Group	LSE	£125.09m	19.75p	0.50p
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