Costain profits from rebuilding Britain: The U.K. needs to modernise its antiquated infrastructure and construction firm Costain said that it is generating steady profits by ploughing through a record order book to modernise Britain. Costain has focused its business on transport, energy and water in the U.K. It has secured work programmes on the controversial high-speed rail link HS2, London’s Crossrail, nuclear projects at Sellafield and the new Hinckley Point endeavour. The construction group has a good track record of delivering its projects. Andrew Wyllie, Chief Executive, said that customers are looking to consolidate their supply chains and work more closely with the construction companies. Under the new contracts, Costain and the client share in both the upside and the downside during the life of the project. “This is why our collaborative approach is important.” Around 90% of Costain’s work is now cost-target based, up from 50% in 2010. It is an impressive performance from Costain and the shares jumped almost 6% higher, bringing gains for the year to 31%. We tipped Costain’s recovery back in March (Buy, 302p, March 3) as we liked the strengthening order book, and the shares have since delivered a more than 20% gain. The shares now trade at a price-earnings (p/e) ratio of 17, which is very high for a low-margin cyclical industry, and yield 3%. We still like the order book and demand for Costain’s services but, after the rapid gains, we downgrade to a hold. Costain at 370p +23½p. Questor says “Hold.”
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