(Alliance News) - Forking out more than GBP50 million in connection to a cancelled contract is a blow for Costain Group PLC, but broker Liberum on Monday said the construction company has reasons to be cheerful.
Costain said it is to make a GBP53.5 million payment in relation to a cancelled contract with National Grid PLC.
In June 2020, the duo agreed to exit a contract to upgrade National Grid's Peterborough and Huntingdon compressor stations. Costain was released from its contractual obligations to complete the works.
This payment is expected to be made in January.
In relation to the National Grid matter, Costain said it has received "several adjudication decisions", with the most recent on December 10. Three out of four of the compensation events were made in favour of Costain.
Costain adds: "As not all compensation events have been decided in our favour, we now expect there to be an overall cash outflow in respect of the contract."
The stock fell 4.5% to 49.39 pence each in London on Monday morning, recovering somewhat after hitting its 12-month low of 46p.
On the claims Costain won, the adjudicator did not make a judgement on the financial claim.
Analysts at Liberum commented: "Costain is confident that it will receive some value on these three events once the additional legal process has been completed."
All in all, despite the GBP53.5 million blow, the outcome of the process is "satisfactory", the broker said. Liberum explained it will have a "broadly neutral" impact on cash.
The broker rates the London listing at Buy, with an 80p price target.
Looking beyond the National Grid legal wrangling, Costain has a promising outlook, Liberum said.
The broker explained Costain has a "bulging pipeline" and is currently trading in line with market expectations.
Costain on Monday confirmed that annual adjusted operating profit is expected to be in line with market expectations. Year-end net cash could land ahead of market expectations at roughly GBP100 million.
"We are making good progress on our journey to transform the business, reduce risk and improve returns. This, combined with the considerable government investment in infrastructure, allows us to look forward with confidence," Costain said.
The company will report its 2021 results on March 9.
Liberum expects Costain to post adjusted revenue of GBP1.08 billion a rise of 0.8% from GBP1.07 billion in 2020. The adjusted figure does not include "significant contract provision" changes.
The broker expects Costain's annual adjusted pretax profit to rise to GBP26.8 million from GBP13.9 million.
By Eric Cunha; ericcunha@alliancenews.com
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Costain (COST)
