Costain cheers investors with key highways contract win

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.