The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
"".....market would also like to see evidence that the 'Operating Excellence model' that was introduced after those two contract disasters is fully in place and showing a meaningful change in things""
As someone who fills in the responses to the model each month I can tell you it makes no difference at all, it's a tick box exercise that is never audited. Likewise "The Costain Way" and "Implementing Best Practise" gates, tools and how to's.
As an aside, what are peoples views on the court decision re the challenge to RIS2 that came out yesterday?
Historically Costain have always had around £100m in net cash - if you look back through the accounts then they regularly report this amount. So you would expect the net to be around £180-200m now, unless it has been used to purchase assets ... in which case I'd be interested to know on what on.
The alternative is that it's been used to service day to day running of the business, in which case I'd be a little concerned.
Well no bad news, but not exactly inspiring............esp as the company were given £100m for 15% of the company as mentioned below. This would suggest that all that money has been eaten up. Hope August half yr results more encouraging.
Pressure is on the CEO now, Kier returns to 3% margin, Skanska back to 3%...........Covid no longer an excuse........... Anything less than 3% will be a poor reflection on how the business is doing, especially after saying how the business wants to target higher margin work.....
"why it hasn't affected the share price....."
Quite simply it's not going to make any money for the next 3 years other than some consultancy fee's taking it through DCO. Jacob's however will be making plenty doing the detailed design. Plus it's quite a risky scheme, founded on lots of peat, so complicated earthworks, in a congested area where the public will be up in arms over damaging the environment, causing delays to traffic flows, impacting the local golf course and keeping the residents awake.............. Who'd invest in construction eh??
Costain place very few large materials orders directly - they are predominantly a construction management company and therefore it becomes the sub-contract suppliers responsibility to place the order for materials.
It's affecting everyone - look at the job adverts for Costain, Balfours, Kier, etc - all looking for engineers, QS's, project managers etc. Upwards of £600/day for a design manager in central London. And lets face it - Tier 1 are basically contract management companies. It's the tier 2 and 3 that struggle to get labour - prices are going through the roof for labour atm - up 20% from this time last year. Look for some jobs to be put back starting due to price increases and lack of resource.
Not sure about green shoots...… - It's been bouncing around the 60p mark for a few months now.
Interesting that 2 of the senior tech team have left in the last week. Does this mean the strategy for been a smart solutions provider (never understood that phrase, and I worked for them till recently) is failing/been dropped, or is it that rival consultants can offer better opportunities, in which case the likes of Atkins/WSP will just come along every time Costain start to show promise in an area and say come and do that for us in a much more established framework?
He has been at the company man and boy - joined at the same time as Darren James who left to head up Keltbray, and was MD of Natural Resources before joining the exec board...…...so certainly been around a while. But the dodgy contracts were on the infrastructure side so maybe not that close to them......
But what did the accounts really say? Nothing that wasn't already said in line with the trading updates, and information in the press about settlements/agreements on certain contracts. All the information had been factored in to the SP already. What's more telling is the statement about future workload, and where the board want the business to go. No more one off big schemes, so no Thames Tidal Barriers or Channel Tunnels - just long term programmes of work that are low risk and average returns. The Clients are squeezing the margins even more and challenging the quotes, and unless you want to lay off half your workforce and see turnover plummet you accept it, in the belief that you will be able to manage the risk and not drop the ball.
https://www.constructionenquirer.com/2021/02/17/costain-settles-a465-heads-of-valleys-contract/
"nothing to do with costain" - Other than the majority of their revenue for the next coulpe of years is in infrastructure, with the SMA framework making up a significant proportion. If this is put on hold or scaled back, then less turnover. I've already heard that the SMA across the whole programme isn't a particularly happy ship. The only bright spot on the horizon is the amount of work coming through on the RDP framework, but even this is having it's challenges.
It's already factored in to TO from RDP North work, as is the A1 Morpeth to Ellington scheme that is currently going through DCO process, and the M60 Simister Island that is about to start. More turnover will be from things like Project Speed that the DfT keeps humming and ahhrring about, and additional work prought in from Cap Ex to ther RDP.
This was announced in June last year - https://www.highwaysmagazine.co.uk/Winners-of-300m-Highways-England-framework-announced/8382 as the SPaTS 2 which is over 4 years.
Of the 2 lots, Costain are in Lot 1 for technical support. There are 12 suppliers over the 2 lots. So, £75m/year, split between 12 suppliers ........... It's not exactly going to set the world alight - Costain are targeting circa 11% PTP on that turnover which while significantly higher than construction activities, and less risky, would give around £650k/year - and Thats assuming Jacobs/Atkins don't pick up the majority of the work which at present they are doing, along with Arcadis on the Technical Assurance roles.
Very astute - Costain highways sector do nearly all their work with Jacobs on the RDP and via the SMA. As the consultancy side of Costain grows, and the emphasis moves away from construction then I think you might see a number of large design houses showing an interest.
I don't know what they made, but if the problems on Bond Street are anything to go by, then I wouldn't hold my breath.....
Next year the work Costain do in the rail sector is due to shrink, while highways is due to increase. However nealy all this work will be in framework type contracts that are (relatively) low risk, and around 2-3% return. Working on one off big projects is something the company is moving away from, unless it is in a project/programme role more akin to consultancy type work - again low risk but what should be significantly higher returns.
I think next year wil be a real marker in terms of the future direction of the company - does it want to build things, or does it want to manage the building of things...................... we shall see!
I'd be amazed if Costain tender for any work like this anymore - they are focusing on low risk framework agreements, where there is a steady supply of work, and focus on the digital - The RDP schemes in the North, East and Southwest, together with the Smart Motorways Alliance, the AMP 7 framework, Local Authority commissions such as East Sussex etc. In fact with the exception of HS2 tunnels, which is a 3 way JV there is very little one off work Costain are doing. The Consultancy side will continue to ramp up, and before long you will be an investor in a technology company rather than a construction company!
thats the 2016 scheme that matured btw - they are typically a 3 year scheme. The 2017 matures end of this month.