Good morning!
After the drama yesterday, with indices gapping lower and oil up by $12-14, the rest of the day was relatively calm.
President Trump has said that US military objectives are “pretty well complete”, but also that he would “not relent until the enemy is totally and decisively defeated”. With his most interesting prediction being that the war would be over “very soon”, his comments were interpreted very positively.
With regards to the Strait of Hormuz, which remains closed, he said he was “thinking about taking it over”. The economic consequences of recent decisions are clearly impacting his thought process:
“We’re looking to keep the oil prices down... They went artificially up because of this excursion.”
Major indices this morning:
FTSE up 1.2%
S&P 500 closed strongly yesterday, clawing back its initial losses. Futures currently trading at 6800 (Friday’s close: 6733)
US crude oil futures are down $8 at $85, after an incredibly wide range yesterday of $80 - $114.
Brent crude is also down $8 at $89.
Gold is stable at around $5,200
It’s so easy to get caught up in daily news flow, and I can be guilty of that myself sometimes.
If we zoom out again and remind ourselves of the bigger picture: the FTSE is up by over 4% year-to-date, having recently made all-time highs.
The FTSE continues to outperform the S&P 500, which is down by 0.9% year-to-date. However, considering the outbreak of war and the stretched valuations in America, I think it’s doing very well to have declined by less than 1%.
When it comes to my personal portfolio, which consists of both single stocks and funds, I recently initiated a position in BPM, as I disclosed here last week. I’m currently 3% in cash, which is high for me - I’m nearly always fully invested. So I’d like to make a few more purchases soon.
When it comes to my single-stock portfolio, these are my current positions. This is obviously not a model portfolio, it’s just the outcome of various decisions I’ve made over the past ten years or so:
Leaving it there for now, thank you. Spreadsheet accompanying this report: link.
Companies Reporting
| Name (Mkt Cap) | RNS | Summary | Our view (Author) |
|---|---|---|---|
Spirax (LON:SPX) (£5.2bn | SR64) | Revenue +2%, operating profit down 13% (£265m) (due to one-off restructuring costs).. Adjusted operating profit +6% organically. 2026: “we anticipate good organic growth and further margin progress as we continue to build on our long track record of value creation through compounding growth and disciplined capital allocation”. Consensus forecasts: | AMBER/GREEN ↑ (Roland) [no section below] In August last year, I took a neutral view on Spirax’s interim results, suggesting that the business was stabilising and had the ability to deliver some organic growth in 2025. Today’s in line results support that view, at least to some extent. Although reported revenue only rose by 2%, this figure rises to 5% on an organic basis. Adjusted profit was also slightly higher, although hefty restructuring costs mean reported operating profit fell. Return on capital of 13% remains below historic levels, but should improve if margins start to expand again. Spirax shares have risen by around 20% since my last view, when I commented that I’d like to spend more time researching this interesting and specialist business. Unfortunately I haven’t spent the time, but with management guiding for mid-single digit organic revenue growth and improved margins in 2026, I am going to tentatively move my view up to AMBER/GREEN, nevertheless. | |
Persimmon (LON:PSN) (£3.9bn | SR94) | Completions up 12%, underlying PBT +13%. Outlook: “Assuming the [Iran] conflict and its impact is short, we expect to deliver between 12,000 and 12,500 completions in the year, with underlying operating profit towards the upper end of current consensus. Our investment for growth at this point in the cycle, will result in increased finance costs and therefore underlying profit before tax is expected to be in line with current consensus”. | AMBER/GREEN = (Roland) While pressures from rising operating costs and buyer affordability are evident, I think this is a solid set of results with an encouraging outlook. My feeling is that today’s guidance could lead to a further modest upgrade to consensus as the year progresses, assuming macro conditions stabilise. I don’t think the shares are cheap enough to be fully positive, but I am comfortable maintaining my previous broadly positive view today. | |
Rotork (LON:ROR) (£3.0bn | SR64) | Revenue +3.7% (organic, constant currency). Adjusted operating profit +10% (occ) to £191.5m. While we are mindful of the recent geopolitical uncertainty, we expect further progress on an OCC basis for the Group in 2026. | ||
Pennon (LON:PNN) (£2.5bn | SR47) | Underlying profitability within the range of market expectations for 2025/26, albeit at the lower end. | BLACK (still within the range of expectations, but at the lower end of the range). Shares up 2%. | |
Grafton (LON:GFTU) (£1.71bn | SR91) | Cygnum is “a leading made-to-order supplier of offsite timber frame solutions to developers and contractors in the Irish market”. Its 2025 revenue and adjusted operating profit were €45.6m and €7.9m.. The price is not given but “reflects a valuation in line with market precedents”. | ||
Genuit (LON:GEN) (£766m | SR73) | Revenue +7.3%, underlying operating profit +2.4% (£94.4m). Outlook: subdued market conditions in Q4 2025 have continued into Q1 2026 as expected, albeit with some positive signs on order intake. Prolonged wet weather has impacted construction site activity in January and February. | BLACK? The Outlook section does not provide reassurance on short-term expectations. But the market has reacted positively, shares up 8%. | |
Dominos Pizza (LON:DOM) (£717m | SR50) | FY25 results in line with guidance, with a solid finish over the Christmas trading period. Underlying FCF £84.6m. FY26 performance is tracking in line with current market expectations. | ||
Costain (LON:COST) (£453m | SR75) | Revenue down 16%. Adjusted operating profit +9.3% (£47.1m). “Our forward work position has grown by 30% to a record £7.0bn… and, combined with our strong balance sheet, underpins our confidence in delivering revenue and operating profit growth in FY 26 and a step change in performance in FY 27 and beyond." | GREEN = (Roland) A solid set of results and confident outlook for further improvements in profit and profitability. I welcome management’s focus on the quality of Costain’s order book and its margins. I’m also reassured by the strong net cash balance, although I would reiterate the view I’ve expressed in the past that net cash in this type of business is needed to support working capital and bid credibility and is not really surplus to requirements. While I would be cautious about bidding the stock up to a much higher valuation, I do think the outlook is strong enough to justify leaving our positive view unchanged today. As Graham has commented previously, I would be quick to downgrade on any sign that momentum is reversing. | |
Capita (LON:CPI) (£422m | SR82) | Adjusted revenue -1.2%, adjusted operating profit +34.2% (£113.5m). Reported operating loss £129.6m. Net financial debt £143.4m. Outlook: “...we expect the Group to deliver low single digit adjusted revenue growth in 2026 compared to 2025. Small decrease in adjusted operating margin reflecting continued challenges in Contact Centre and increased mobilisation costs in Pension Solutions and Public Service.” | BLACK (AMBER/RED ↓) (Graham) | |
Chrysalis Investments (LON:CHRY) (£419m | SR76) | Following recent share price movements in Klarna, part of the Company's borrowing base has reduced. As a result… the Company has made a repayment of £32.8 million to maintain compliance with the facility's loan-to-value requirements. £17.2 million of the loan remains outstanding. The company intends to repay it in full in September 2026. | ||
Sabre Insurance (LON:SBRE) (£318m | SR75) | Gross Written Premium down 14.2%, Combined Operating Ratio improved to 82.3% (FY24: 84.2%). Pre-tax profit up 4.9% to £51.0m. £5m share buyback proposed. Strong momentum from Q4 has continued into 2026, expect 2026 margins to be “within our target 18% to 22% range”. | AMBER/GREEN (Graham) | |
Central Asia Metals (LON:CAML) (£311m | SR99) | Cancelling the share premium account to increase distributable reserves. These will support the company’s ability to pay dividends and fund share buybacks, if it is appropriate to do so. | ||
Concurrent Technologies (LON:CNC) (£210m | SR63) | A new family of rugged computing cards based on Intel’s new Core Ultra Processor (Series 3) architecture. | ||
dotDigital (LON:DOTD) (£170m | SR50) | Revenue up 4%, average revenue per customer up 7%. Adj pre-tax profit down 11% to £8.9m due to lower margins. Trading in line with FY expectations on a constant currency basis. | ||
Somero Enterprises (LON:SOM) (£116m | SR90) | Revenue down 19%, pre-tax profit down 36% to $15.2m. 2025 trading in line with revised expectations. All key regions reported higher revenue in H2 vs H1. FY26 outlook unchanged, “solid start” to the year. Cavendish new forecasts: | AMBER ↑ (Roland) [no section below] Today’s results are in line with revised forecasts for earnings per share of $0.20. But it may be worth remembering that a year ago, Somero was expected to generate 2025 earnings of nearly $0.40 per share. One positive from today’s update is that H2 was sequentially stronger than H1, with North America revenue up 14% in H2 vs H1 and Europe 55% higher. Unfortunately, this wasn’t enough to repair the damage to Somero’s previously high returns on capital, which fell to 16% last year (2024: 28%, 2023: 40%). As we’ve commented before in these pages, we’re no longer convinced the company’s competitive advantages are as strong as they once were. Increased competition and a prolonged slump in US demand have taken the shine of what previously appeared to be a much higher quality business. The outlook for 2026 is for sales and profits “broadly comparable” to 2025. Broker Cavendish has interpreted this as a slight decline (see left). The shares are trading on a forward P/E of 15 after today’s results, or around 12x excluding $33m of net cash. On balance I think I can justify upgrading our view by one notch to be neutral, but I also think there are more attractive small-cap opportunities elsewhere. | |
Mincon (LON:MCON) (£111m | SR94) | Revenue up 2%, operating profit up 119% to €10.9m. Construction revenue rose by 14%, mining revenue fell by 9%. Signed 3yr exclusive contract with Epiroc to commercialise Greenhammer system. Outlook: expect continued growth in 2026. | ||
Ilika (LON:IKA) (£54m | SR12) | Successfully delivered the initial batch of commercial grade Stereax electrode to Cirtec Medical for Stereax M300 production. | ||
Panther Securities (LON:PNS) (£50m | SR81) | Has shortened an interest rate swap that provides a fixed interest rate of 3.4% on £35m of borrowing. This swap will now expire in 2031 instead of 2038. This has generated £2.06m of cash proceeds. | ||
EnSilica (LON:ENSI) (£46m | SR49) | $1.6m contract win for design services for a chip used within life-science analysis. Revenue contributions starting in FY27. Also reports a $200k feasibility study and an extension to an Automotive ASIC programme that’s expected to generate $4m of additional revenue from 2026-2028. | ||
ATC Music (LON:ATC) (£24m | SR11) | Push is a UK-based technology services company providing marketing and analytics services to the music industry (FY25 EBIT c.£180k). Cirkay is a platform that helps connect fans and artists (FY25 LBT of £160k). Total consideration is £1.05m, with £300k paid in cash and the remainder in new shares. | ||
88 Energy (LON:88E) (£20m | SR27) | The company's broker has sold shares acquired under this facility since June 2025. A total of 46m shares held by 6,049 shareholders have been sold. Proceeds will be distributed to participants around 20 March 2026 in AUD. | ||
Solvonis Therapeutics (LON:SVNS) (£15m | SR14) | SVN-114 has been chosen as the lead candidate from the company’s SVN-SDN-14 programme targeting PTSD. | ||
Videndum (LON:VID) (£10m | SR37) | Raising £85m in new equity through a placing at 270p per ordinary share post-consolidation. This is equivalent to a pre-consolidation price of 1.35p per share. £23m of debt will be converted to new equity, with a further £15.8m of debt written off. Overall outcome will result in a £111.7m reduction in pro forma net debt to £31.2m. If the refinancing does not proceed, the company has agreed an alternative transaction with lenders that would be “highly likely” to result in “no or de minimis recovery” for existing shareholders. FY26 trading expectations are unchanged. |
Graham's Section
Capita (LON:CPI)
Down 15% to 300.5p (£361m) - Full Year Results 2025 - Graham - BLACK (AMBER/RED ↓)
These are poor results for FY December 2025 and the market appears surprised by the extent of the bad news.
Before getting into management commentary, let’s first focus on the numbers.
Revenues down 4.5%.
Operating loss £130m (last year: loss £10m).
Adjusted operating profit £113.5m, up 34% year-on-year.
Net financial debt £143m (last year: £66.5m).
The difference between the adjusted loss and the actual loss is explained by the following items.
Goodwill impairment of £74m in the Contact Centre business.
The cost reduction programme had upfront costs of £56m. Capita says it has delivered the full £250m of its targeted annualised cost savings.
The March 2023 cyber incident caused a further £16m of costs that are treated as exceptional.
On top of that, there are £97m of costs under the headline “Business Exits”. These are businesses that have been sold or are in the process of being sold/shut down. There are three such businesses in the 2025 results: Closed Book Life and Pensions, Mortgage Servicing, and Corporate Ventures.
Readers will know that when results are very messy like this, it tends to make me cautious. Especially if heavy adjustments are a regular occurrence.
Last year, Capita’s adjusted operating profit was £85m (a number which itself has been restated), but the actual operating loss was £10m. The previous year, the adjusted operating profit was £91m, while the actual operating loss was £52m.
When you consider the real losses that the business has incurred, it's little surprise that the shares have struggled to recover from these depressed levels in recent years:
The CEO’s review argues that they achieved plenty in 2025:
2025 was a pivotal year for Capita as we progressed on our transformation journey to become the first AI-led business process outsourcer (BPO). I am excited about what we have achieved since I joined in 2024, and by the platform that we have created to execute our ambitions…
Our 2025 financial performance is improving across the majority of metrics and was broadly in line with our expectations. Group adjusted revenue was 1.2% lower than 2024, with revenue growth in Public Service and Pension Solutions more than offset by a 17.5% decline in Contact Centre driven by reduced volumes in the Telecommunications vertical and contract losses.
It’s a very long and detailed review and I’ll invite you to read it at your leisure. What sticks out to me is the focus on AI: it’s almost obligatory for companies to talk about how they use AI these days, but Capita are doing more than most, putting it at the heart of their stated strategy.
Some important metrics:
Total contract value won (TCV) increased by 36% to £2,055m, which sounds very good but I note that its less than one year’s revenues.
Book-to-bill: in a similar vein, book-to-bill came in at 0.9x. That’s a very good increase on last year’s 0.6x, but anything less than 1x means that they are fulfilling orders faster than they are booking new ones.
Outlook: I’ll quote this piece in full as it’s critical to understanding the story. With emphasis added:
We are excited about our positioning in a strong market with significant opportunity ahead, leveraging the strong foundations we have put in place as the market and technology landscape continues to change and evolve.
Capita is now a leaner business, focused on delivering scalable and repeatable solutions to customers utilising its technology partners and in 2026, we will be launching further AI-powered products which will make us more competitive, re-enforcing our right to win and more relevant to our regulated and public customers who are increasingly looking to benefit from AI solutions in a trusted environment
Reflecting good growth in Public Service and Pension Solutions, offset by challenges in Contact Centre, we expect the Group to deliver low single digit adjusted revenue growth in 2026 compared to 2025
Small decrease in adjusted operating margin reflecting continued challenges in Contact Centre and increased mobilisation costs in Pension Solutions and Public Service
We expect the Group to generate free cash flow, excluding the impact of business exits between £20m - £40m, with a cash conversion of 70% - 80%.
Based on existing forecasts, this is a profit warning. Revenues were indeed forecast to grow by low single digits in 2026, but the operating margin was supposed to improve, not deteriorate. The free cash flow guidance looks consistent with existing forecasts.
Graham’s view
I was neutral on this in December, seeing both positives and negatives at a market cap of £460m.
Today, at a market cap of £360m, I should be able to stay neutral, but the news of declining profit margins forces my hand. I’m going to downgrade this by one notch, to AMBER/RED.
In December, the limited revenue growth held me back from taking a more positive stance.
Today, it’s the balance sheet that prevents me from considering staying neutral. The balance sheet has net assets of £42m (last year: £196m), but it includes £400m of intangibles. Strip them out and the company is deeply in the red. And this is not a purely academic exercise: financial net debt is rising, too.
With performance disappointing and the company’s finances not providing much comfort, I think AMBER/RED is the right call.
The StockRanks still like it, calling it a Turnaround, but the MomentumRank may take a hit after these results.
Sabre Insurance (LON:SBRE)
Up 7% to 138p (£339m) - Full Year Results 2025 - Graham - AMBER/GREEN
We don’t normally cover this motor insurer, but let’s take the opportunity to get something into the archives now.
It operates a small number of brands, including Sabre Insurance, and over 240,000 in-force policies.
An excellent headline for these full-year results:
Profit increased, strong underwriting performance, positive premium momentum into 2026 and £5m share buyback
Here are the highlights, including a reduction in written premiums:
Gross written premiums down 14%
Net loss ratio 54.1% (previously 58.7%) [GN note - this is a good thing; the lower the net loss ratio, the more profitable the insurance policies are for the insurer.]
Combined operating ratio 82.3% (previously 84.2%) [GN note - similarly, the lower this is, the more profitable are the operations of an insurance company.]
PBT increases 4.9% to £51m.
After-tax profit increases 5.3% to £37.9m.
Return on tangible equity falls from 38.2% to 37.2%.
So there’s very little to dislike here.
The slight fall in ROTE is not ideal, but 37% is still much higher than we see in many other industries.
Also the fall in written premium is worthy of explanation.
CEO comment explains that there has been a “soft pricing environment”, which is consistent with what I’ve read elsewhere about the insurance industry over the past year.
"I am very pleased that Sabre has continued its track record of delivering strong profits throughout the underwriting cycle, including the softer pricing environment seen in 2025. With market pricing having lagged claims spend trends for much of the year, we maintained our underwriting discipline, executing robust cycle management and allowed volumes to reduce whilst delivering a strong and improving margin through the period, leading to a 4.9% increase in profit before tax.”
I have absolutely no complaint against this sort of discipline.
Justifying their position, they have a pretty strong view on conditions in the market:
Our view is that pricing has fallen behind cost and claims inflation, and a correction is required.
While insurance is a fine sector in which to invest (just ask Warren Buffett), like many industries it does go through cycles where pricing is poor, and there is nothing that responsible companies can do except stand back and wait for things to improve.
Full year dividend rises slightly to 13.5p. Earnings per share are 15.4p, so this is covered.
Outlook from the CEO:
Looking ahead to 2026 and beyond, I see a clear opportunity to grow both profits and premium over the medium-term. We expect the Group to continue premium growth in 2026, and to deliver a profit slightly ahead of 2025 as the high-margin business written in 2025 earns through. I anticipate we will continue to deliver sustainable profitable growth as we move towards 2030.
Existing expectations for 2026 are very modest and the guidance here does not appear to contradict them. They “expect strong margins in 2026, within our target 18% to 22% range, as well-priced policies written in 2025 and 2026 earn through”.
Balance sheet: there is balance sheet equity of £258m, although this falls to only about £100m if we deduct intangibles.
So at this market cap, there isn’t really any balance sheet support:
Graham’s view
I’m new to this stock but I do come away with a positive impression of the business and its potential attractions as an investment. I do tend to like insurance companies, so that’s not a big surprise, but I can see the attraction at this sort of valuation:
I think the P/E multiple on 2026 earnings is about 9.5x, after today’s gains, and the forecast dividend yield is about 9.2%.
So it doesn’t quite qualify as one of those special situations where the dividend yield is higher than the P/E multiple, but it’s close.
The lack of balance sheet support is a slight drawback, but when the company is earning such high ROTE and paying a dividend yield of 9%+, that might not be terribly important.
This is worthy of additional research and I’m happy to start out with an AMBER/GREEN perspective for now.
Roland's Section
Persimmon (LON:PSN)
Up 6.6% at 1,304p (£4.2bn) - Full Year Results - Roland - AMBER/GREEN =
In my article last week on housebuilders, I flagged up Persimmon as one of the companies I’d consider for a momentum-driven play on the UK housing market:
Today’s results appear to have hit the spot with investors. The company has nudged its 2026 guidance up towards “the upper end of current consensus” and comments that “market conditions have been supportive”.
When combined with the more reassuring tone of US news flow overnight (see Graham’s comments above) the net effect is that Persimmon is the top riser on the FTSE 100 this morning:
Let’s take a look.
2025 result summary
Following January’s trading update, we already knew that Persimmon expected to report a 12% rise in completions for last year. Today’s results confirm this:
New home completions up 12% to 11,905.
New home average sales price up 4% to £278,203.
The accompanying numbers are comfortably in line with 2025 consensus and look broadly reassuring at first glance:
Revenue up 17% to £3,751.3m.
New home sale revenue up 16% to £3,310m (total revenue minus part-exchange sales).
Adjusted per-tax profit up 13% to £445.6m.
Reported pre-tax profit up 11% to £397.3m.
Adjusted EPS up 9% to 100.7p.
Dividend unchanged at 60p per share.
Net cash down 55% to £117m.
One point I think is worth noting relates to profitability. We often look for evidence of operating leverage in company results. That’s the situation where profits rise faster than sales, as a company’s fixed costs are spread across a bigger chunk of revenue.
For housebuilders, operating leverage can be difficult to achieve. A high proportion of costs are labour and materials – variable costs that rise with any increase in homebuilding. Any improvement in margins can only be achieved by cutting costs or raising selling prices.
Recent conditions in the housing market have seen persistent cost inflation and declining buyer affordability. Persimmon’s operating costs rose by 15% last year, mirroring the rise in revenue from new home sales.
Although Persimmon’s average private sales price rose by 4% last year, the company also says that sales incentives (free upgrades or other in-kind discounts) averaged c.4.6% per reservation.
In other words, the increase in selling prices was entirely offset by incentives. Housebuilders hate to cut prices. Sales incentives – together with other measures such as part exchange – are part of the toolkit they use to avoid price reductions.
Although Persimmon is one of the largest and most profitable listed housebuilders in the UK, the impact of these constraints is still clear in today’s numbers. While completions rose by 12%, profit margins were broadly flat at both an underlying level and on a statutory basis:
Operating margin: 11% (FY24: 12%);
Return on Capital Employed (ROCE): 10% (FY24: 9.4%);
Return on Equity: 8% (FY24: 7.7%).
(I have opted to use the reported operating profit figure of £423.8m, rather than the underlying figure of £472.1m. The main difference is £39.8m “legacy buildings provision” relating to ongoing building safety remediation work. This involves real cash outflows and is a legacy of the industry’s past poor behaviour (in my view), so I see it as a cost of doing business and not something to be adjusted out.)
Profitability at this level is enough to cover the group’s cost of capital and support shareholder returns, but not sufficient to build a capital buffer or fund significant increases in capital employed.
The StockReport supports this view, showing us that both working capital and capital employed have been broadly flat over the last five years:
Cash generation is another area worth monitoring. Persimmon’s net cash has been falling steadily as the company has maintained dividend payments without free cash flow cover:
One reason for this is that inventories (land and unsold/part-built homes) have been rising:
Today’s accounts show a further £590m cash outflow on increased inventories, which rose to £4.5bn in 2025. This suggests a rising level of unsold new homes to me.
This isn’t necessarily an unmanageable problem, but it does highlight how the company has to find a way to stimulate volume sales even if it depresses margins.
The flipside of this situation is that when market conditions are strong, housebuilders are often able to generate high levels of surplus capital – there is a cyclical element to this.
Outlook
I would guess that most of today’s share price growth is being driven by Perismmon’s upbeat outlook statement. Today’s commentary suggests that selling conditions may be improving this year, or at least that 2026 has got off to a solid start.
Here are the key sections – it looks like selling prices are rising more strongly than last year’s average of 4% growth:
In the first nine weeks of this year our net private sales rate per outlet per week was 0.73, up 9% compared to the same period last year (2025: 0.67). The private average selling price in the order book is up 6%, which combined with increased reservations has resulted in a 9% increase in our private forward sales position to £1.25bn as at 1 March compared with a year ago (2025: £1.15bn).
Helpfully, Persimmon provides details of its view on 2026 consensus estimates (as of 6 March 26):
12,136 completions.
Underlying operating profit of £486m to £517m.
Average underlying pre-tax profit estimate of £470m.
Today’s guidance suggests there could be some upside to forecast completions if the geopolitical situation stabilises:
Assuming the conflict and its impact is short, we expect to deliver between 12,000 and 12,500 completions in the year.
However, the comments I made earlier about profitability do appear to be reflected in today’s management guidance.
While operating profit is now expected to be at the upper end of consensus, pre-tax profit remains only in line due to expected higher financing costs. This confirms my view that Persimmon hasn’t been generating enough surplus capital to fund shareholder returns and investment in growth:
We expect underlying operating profit to be towards the upper end of the current market consensus range and, with increased financing costs reflecting our investment for growth, underlying profit before tax is expected to be in line with current market expectations
CEO Dean Finch emphasises that he hopes to be able to return the business to past levels of profitability, perhaps more so when the bulk of building safety remediation work has been completed:
This investment, along with capital allocation choices as we progress our building safety remediation work, will enable us to convert market opportunities into sustainable growth in support of our medium-term ambitions to deliver an underlying operating margin and ROCE of 20% and increased returns for our shareholders.
Roland’s view
Persimmon’s share price is still lower than it was at the time of January’s trading update, so I am not surprised to see the shares performing well today.
Based on consensus prior to today’s results, the stock is trading on a forward P/E of 12 with a 5% dividend yield.
Although I’d normally argue that the price/book ratio of c.1.2x is high enough for a property business with this level of profitability, the improving momentum here helps to offset this.
Consensus estimates have been creeping higher since January and I expect a further modest upgrade to forecasts following today’s results.
In this light, Persimmon’s valuation continues to look reasonable to me. However, given the uncertainty over macroeconomic conditions and the continuing pressure on profitability, Persimmon is not quite cheap enough to persuade me to take a fully positive (GREEN) view.
Having upgraded to AMBER/GREEN in January, I’m going to leave this view unchanged today.
Costain (LON:COST)
Up 17% at 199p (£530m) - Final Results - Roland - GREEN =
Graham tentatively upgraded Costain to GREEN following January’s full-year update – a decision that seems to have been justified by today’s results, which have lifted the stock back towards a post-pandemic high:
2025 results highlights
The main points from today’s results show improved profitability and a strengthened forward work position, despite a reduction in revenue:
Revenue down 16.4% to £1,045,7m
Adjusted pre-tax profit up 4.1% to £50.5m
Adjusted EPS down 0.7% to 14.5p
Dividend up 75% to 4.2p per share
Net cash up 19% to £189.3m
Forward work position up £1.6bn to £7.0bn
At a group level, operating margin doubled to 4% last year (2024: 2%) and return on capital employed improved to 16% (2024: 12.4%).
This change partly reflects the shift in revenue mix within the business, with a reduced contribution from the lower-margin Transportation segment and an improvement in Natural Resources.
Transportation: the drop in revenue last year reflects a reduction in revenue following the completion of a major road-building project framework. This saw road-related revenue fall by 50% to £165.8m in 2025. Rail revenue was 25% lower due to delays and alterations to the HS2 programme. The only bright spot was a 71% increase in Integrated Transport, which reflects expanding work at Heathrow.
The forward work position for Transportation is £616m, in line with last year’s revenue of £605m. This suggests to me that trading in this division could stabilise and perhaps start to improve this year.
Natural Resources: this division includes water, energy, defence and nuclear energy. It’s a significantly higher margin business than Transportation. Profitability improved further last year due to higher energy and defence revenues:
Balance sheet: while the improved year-end net cash balance of £189m is obviously positive, it’s worth remembering that this business (and many other companies in the construction/outsourcing sector) generally aim to have net cash balance sheets.
This liquidity is needed to be able to fund large working capital movements (e.g. project startups) and persuade would-be clients that they have sufficient financial strength to deliver contracts reliably.
My view with companies such as Costain is that net cash is generally not surplus to requirements. Indeed, in both 2014 and 2020 Costain opted to raise cash from shareholders to strengthen its financial position – even though it had reported net cash at the prior year end.
Costain doesn’t follow the gold standard of reporting daily average net cash, but the company does disclose monthly and weekly figures. These are respectably close to the overall year-end net cash position:
Average month-end net cash: £152.6m (2024: £169.8m)
Average week-end net cash: £149.2m (2024: £164.3m)
Dividend & Buyback: the removal of a previous constraint on dividend payments in relation to pension contributions has now been lifted. No further cash contributions to the company’s pension scheme are expected until at least 2031 and Costain is now free to pay more generous dividend payments, should it see fit.
The board has opted to take advantage of this arrangement for 2025, lifting the full-year payout by 75% to 4.2p per share.
Outlook
I’m pleased to see CEO Alex Vaughan emphasises financial discipline and margins in his outlook guidance today:
As we deliver these higher volumes of work, we will remain focused on maintaining the rigorous contract management disciplines that have led to today's high-quality contract portfolio and industry-leading margins. We expect to remain highly cash generative and to deliver progress in both revenue and adjusted operating profit in FY 26 with an adjusted operating margin of around 4.0% for the full year, in line with market expectations [...]
Checking Costain’s website, consensus expectations for 2026 and 2027 are given as:
FY25 actual adj EPS: 14.5p
FY26E adj EPS: 15.0p (+3%)
FY27E adj EPS: 17.4p (+16%)
These estimates price Costain on a FY26E P/E of 13, falling to 11.5 for FY27.
Adjusting for net cash reduces these multiples to around 8.5x and 7.4 respectively, although as commented above I prefer not to view cash as surplus to requirements.
Checking today’s updated broker notes from Panmure Liberum and Cavendish, both brokers have left estimates unchanged but emphasised the stronger profitability expected from 2027.
Roland’s view
In January, Graham commented that he wasn’t really convinced that Costain should trade at a higher multiple than its current valuation.
I share this view, but I respect the strong momentum and improving profitability in the business.
Costain’s positioning also looks quite attractive to me at the moment, with a strong focus on energy and water infrastructure – key national focus areas where much investment is needed. Growing strength in the nuclear sector appears to be a particular driver of growth at attractive margins, perhaps unsurprisingly.
I am content to leave our positive view unchanged today, while reiterating Graham’s caveat that I would downgrade immediately at any sign of failing momentum.
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