Added to Costain last week after 5%+ under performance since November IMS. This came despite a string of contract announcements and some big upgrades for the full year from 25.7p to 30.2p on the back of a PFI disposal. Looks cheap on EV/ Sales v Operating margin of 2.5%, but not as cheap as it first looks because cash is coming down this year due to transition to lower risk cost reimbursable contracts, reduced levels of advance payments and increasing support services revenues.
So assuming net cash trending toward zero and factoring in £40m pension deficit leaves EV close to market cap. of £185m and EV/Sales on this basis 185/943(2014 Sales F) = 0.2x @ 277p.
Using a 0.25x EV/Sales gives 943*.25 = £235m. So 235/185 = 1.27 * 277 = 351p price target 26.7% upside - good but not that exciting, but does come with a well covered yield. Assuming say 30p of eps and 11p dividend for 2014 would equal 11.7x & 3.13% Yield @351p versus 9.2x & 4% currently. However, P/E and Yield have not been that high / low since 2010, but I would expect a re-rating this year on the back of an improving economy and recovering construction market.
Trading update today reiterates the orders received recently and the disposal. They also highlight the strong forward order book of £3bn (up 25%) which includes over 75% of next years revenue of between £900n and £1bn already secured - up from last year. They also confirm they were cash positive at the year end, but I expect this to be down on last year.