Costain Shares: Analyst Highlights ‘Clear Valuation Upside Potential’ After In-Line H1

Cavendish reiterated its Buy rating and 297p target price on Costain (LON: COST) in a note on Thursday, pointing to “clear valuation upside potential” after the infrastructure group delivered a solid first-half performance.

Research Associate Director Max Hayes said Costain reported “a solid 1H26 performance,” with revenue up 3.4% to £543.1m, adjusted operating profit up 3.0% to £17.3m and margins maintained at 3.2%.

The results support Cavendish’s view that full-year performance will be weighted roughly 40/60 towards the second half, with management pointing to AMP8 water programmes moving from design into construction, alongside increasing activity at Heathrow and the M60 project.

The firm highlighted a strong balance sheet, with net cash rising £20m year on year to £164.4m despite a near-doubling of the interim dividend and share buybacks. Hayes said the doubling of the dividend “reflects the removal of the pension-related dividend constraint and management’s increased focus on shareholder returns.”

On valuation, Cavendish said “consistent delivery, balance sheet strengthening and growth in high-quality order books have supported a re-rating across the Tier 1s,” with Costain having closed the discount to peers.

The firm argued the UK “offers an unrivalled market for infrastructure growth,” noting Balfour Beatty’s results showed US growth was strong but at lower margins than the UK.

Cavendish said its 297p target implies an 11.0 times blended EV/EBIT across fiscal 2026 and 2027, in line with the FTSE 250 five-year average, and believes Costain’s UK weighting and balance-sheet-backed returns support “a path to upside and a premium to the FTSE 250.”