Costain cheers investors with key highways contract win

Shares in Costain jumped on Monday after the infrastructure specialist was named one of six core partners in the government’s £4.5bn Smart Motorway Programme Alliance.

The SMP Alliance is designed to increase capacity and improve safety across England’s road network.

Alex Vaughan, chief executive, said of the 10-year framework: “We are delighted to have been selected as one of the partners. This strategic programme will deliver the much-needed capacity and safety improvements across the strategic road network in England. This programme approach seeks a step change in delivery performance.”

As at 1215 BST, shares in Costain – which has a long-standing relationship with Highways England – were trading nearly 6% higher at 83.40p.

Joe Brent, analyst at Liberum, called it a “significant” framework win.

“We expect the value of the work to Costain will be around £1bn, and that it will start to have an impact from the 2021 full-year, adding around £70m to £100m of revenues for 2021,” he added.

“We expect margins within the target range of 5% to 6%. Over time we expect this to add around £1bn to the order book, but this will only be as schemes are allocated over the period of the framework.”

Because of uncertainty surrounding Covid-19, Liberum has left its estimates unchanged. But Brent conceded: “This adds upside pressure to our estimates in 2021 and beyond and provide further evidence that the government is keen to get th enation building infrastructure.”

Liberum has a ‘buy’ recommendation on Costain and a price target of 100p.