Costain targets revenue hike, but PFI deal dogs profit

Analysts are expecting Costain to post revenue in excess of £1.5bn this year as the firm looks to fill its boots on infrastructure work.

The firm has a stated objective of “accelerating growth” and in its latest interim results, Costain said it has already picked up £1.4bn of turnover this year.

A broker’s note from Liberum said it had updated its full year revenue forecast to £1.52bn and Costain finance director Tony Bickerstaff (pictured) said analysts were predicting turnover to be up 25% on last year’s £1.3bn.

Work is being driven by rail and water schemes such as Crossrail and the AMP6 water upgrade work as well as acquisitions which saw the firm splash out £17m last month for roads technology specialist Simulation Systems.

But the firm’s £400m Greater Manchester Waste PFI scheme continues to dog profit with Costain racking up another loss on the scheme it won back in 2007.

The latest hitch saw it take an £11.4m hit on the project – sending its natural resources division to an £8.4m loss – which has involved building 46 facilities across the region.

All are now up and running but Bickerstaff said it was having to send in teams to a number of plants to improve their efficiency. “We’re only allowed in during a shutdown or maintenance period.”

The next level of completion on the scheme for operator Viridor Laing is slated for 2017 but Bickerstaff said more work will still need to be carried out the following year. Costain has previously said it expects to finally draw a line under a scheme that first saw it report problems back in 2014 by 2018 and added: “That plan hasn’t changed.”

The news was a blot on its results for the six months to June which saw the firm post a 13% increase in pre-tax profits to £11.3m while revenue was up 27% to £791m.

Bickerstaff joined the ranks of executives who have recently said the UK’s decision to leave the EU has not affected business. “There has been no day-to-day change whatsoever. It feels like no change.”

He said it would give the industry confidence if new prime minister Theresa May gave the green light to schemes like Hinkley but added: “[While] it’s good to have those big ticket items you need a mixture of investment in infrastructure.”

But he said the government needed to take a leaf out of Team GB’s success at the recent Rio Olympics if it wanted to make sure the UK competed on the world stage. “The investment in Team GB began eight years ago, before London [2012]. Infrastructure is the same. Invest in infrastructure and we will see the benefits.”

Losses in the firm’s tourist development at the bottom of Spain, opposite Gibraltar, narrowed to £200,000 from £500,000 last time. Bickerstaff said the scheme, called Alcaidesa and which features golf courses and a marina, was non-core with Costain looking to sell it at a later stage.