This feature is part of a new series titled Stock in Focus".  Each week we'll be taking a look at a stock highlighted by the StockRanks in a specific sector - this week it's Costain Group from the Industrials sector.  As ever these are not recommendations… so DYOR.


When a profitable company decides to raise fresh capital by issuing new shares, there's usually a good reason. The fresh cash often points to acquisition or expansion plans. This often changes the investment outlook for a stock, so it's usually worth a closer look.

Costain

A case in point is Costain Group Plc (LON:COST), a £330m construction and engineering business listed on the London Stock Exchange, that raised £75m through a placing and open offer in March 2014.

Costain's management believes the fresh cash will enable the firm to move up the value chain and compete successfully for larger, more profitable projects. It's this opportunity which I believe lies behind the investment case for the stock and makes it this week's Stock in Focus.

From houses to infrastructure

Costain was founded by Richard Costain and his brother-in-law in 1865. The firm first grew by meeting the fast-growing need for new housing in south-east England.

Costain then branched out into infrastructure work and started to expand overseas. Big projects in the Middle East, Asia, Australia and the US sat alongside high-profile UK projects such as the Thames Barrier. However, an overambitious venture involving deep coal mines in the US nearly destroyed the company in the 1990s.  

Since then, Costain has regrouped and now focuses only on UK water, energy and transport infrastructure projects. Turnover was £1.1bn last year, and projects are often undertaken as joint ventures with peers such as Balfour Beatty and Morgan Sindall.

Costain's current projects include the redevelopment of Bond Street and London Bridge railway stations. The firm is also managing the supply and delivery of an additional evaporator at Sellafield nuclear power station.

Costain's goal is to target larger and more complex projects, in which it can take a leading role. If successful, I believe this should gradually add to Costain's profitability and to its defensive moat. Could this deliver substantial upside for investors?

In a sweet spot?

Costain StockRank

Costain ended last year with a record £3.5bn order book.  

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