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Stock of the week: Costain

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Ian Forrest, investment research analyst at The Share Centre, picks Costain as stock of the week.

The shares of British construction and civil engineering solutions provider, Costain, are up by over 30% compared to last year. In its latest results in August, the group reported a profit of £15.7m on the back of a 12% rise in revenue to £874.5m. Furthermore, income seekers should note that the firm’s interim dividend is being raised by 10% to 4.75 pence.

The group’s aim is to focus on winning contracts in the water, energy and transportation sectors. The group has been building on relationships with many blue-chip customers, which has led to 90% of revenue representing repeat business. Currently, it’s involved in high profile projects such as Crossrail and London Bridge Station, as well as with Thames Water, UK Highways Agency and nuclear decommissioning. Investors should acknowledge that management expect more predictable revenue in the future as a result of less risky forms of contract.

Interestingly, management have highlighted the fact that customers are increasingly looking to consolidate their supply chains and give more work to companies that have delivered projects on time and to budget. Costain looks to be increasingly well placed to benefit from this.

Investors should note that improving the infrastructure system in the UK is something that the majority of political parties agree on. Costain looks set to be a beneficiary of this over future years. We recommend the shares as a long-term ‘buy’ for those with a balanced portfolio and willing to accept a medium level of risk.

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