Costain Group (LON:COST) reported higher first-half revenue, operating profit and earnings as the infrastructure services company said it had reached an “inflection point” for growth, supported by a record £7 billion forward work position and rising activity across water, energy, transport and nuclear markets.
The company said revenue increased 3.4% to just over £500 million in the first half of 2026, while adjusted operating profit rose 3% to £17.3 million. Adjusted operating margin was unchanged at 3.2%, and adjusted basic earnings per share increased 3.6% to 5.7p.
Cash strength supports increased shareholder returns
Net cash stood at £164.4 million at the half-year end, £20 million above the comparable prior-year period, after shareholder returns. Costain expects year-end net cash of approximately £170 million, after reflecting its enhanced dividend, a £20 million share buyback program and increased purchases of treasury shares for employee share schemes.
The company reported an adjusted free cash outflow of £1.4 million in the first half, which Willis attributed to working-capital timing, modest capital expenditure and a £3 million tax outflow. Average weekend net cash was £177.3 million, up £25 million from the first half of 2025.
Costain has revised its target dividend cover to 2.5 times adjusted earnings from three times. Under the policy, approximately one-third of the annual dividend will be paid at the interim stage and two-thirds at the final stage.
The group announced a doubling of its interim dividend and said it expects to return approximately £34 million to shareholders in 2026, compared with £17 million in the prior year. The total includes the £20 million buyback program. As of Aug. 12, Costain had acquired 6.1 million shares for £12.1 million under the program.
Willis said the lower dividend-cover target reflected the company’s increasing confidence, strengthened cash position and expected growth. She added that Costain continued to prioritize investment in the business and was actively considering merger and acquisition opportunities, while not intending to rush into transactions.
Record forward work provides 2026 and 2027 visibility
Costain maintained its record £7 billion forward work position, comprising a £3.5 billion order book and a £3.5 billion preferred-bid book. The total was 25% higher than a year earlier and 67% above the level six years ago, according to the company.
The group said the forward work position was more than six times 2025 revenue and provides 91% visibility of consensus revenue for both 2026 and 2027. It includes £1.9 billion of revenue expected during the second half of 2026 and 2027, £1.7 billion for 2028 and 2029, and a further £3.4 billion beyond that period.
Willis said the portfolio contains no single-stage lump-sum contracts and is predominantly made up of target-cost arrangements, in which scope, design and cost are developed with customers. She said the approach supported a more predictable risk profile and delivery outcomes.
The mix of work has also shifted away from central government customers. Central government represented 29% of forward work, down from 64% previously, while private and regulated customers accounted for 48% and devolved government customers represented 23%.
New customers added during the first half included the Port of Dover, London Gatwick Airport and National Grid. Costain also highlighted new positions in electricity transmission, reservoir program management and Transport for London rail work.
Water, transport and energy activity set to increase
Natural Resources revenue grew across all sectors, according to the company. Water work is moving from design into construction during the AMP8 regulatory cycle, while Energy revenue rose 25.7%, driven in part by work on BP’s carbon capture program at Teesside and gas mains replacement management for Cadent.
Revenue in Defence and Nuclear increased 3.6%, supported by existing delivery partnerships. Costain said it was progressing work with Sellafield, Urenco and Nuclear Restoration Services, and described its Sellafield assignment as a 15-year program that had been mobilized during the first half.
In Transportation, revenue declined as expected following completion of several Road Delivery Partnership framework projects. However, Costain expects a return to growth in the second half as construction begins on the M60 project, with the M5 following thereafter. Integrated Transport revenue increased nearly 40%, as activity expanded at Heathrow.
The company said London Gatwick work was currently in a planning and design phase before moving into delivery next year. It also cited rail work for HS2, including major civil works and contracts for high-voltage power and tunnel mechanical and electrical fit-out.
Management said water was a particularly significant long-term opportunity. The company cited a £104 billion regulatory investment period for the sector and said regulators had announced a further £3.4 billion of spending to support demand growth, including data centers and housing.
Costain said it works with five major water companies on capital-delivery programs and has long-term relationships with customers including United Utilities, Southern Water and Northumbrian Water. Its United Utilities partnership, first secured in 2019, has been extended through 2029.
Margin focus remains on design, risk management and scale
In response to analyst questions, management said it sought to protect margins by undertaking extensive design and planning work before entering delivery phases. The company said this process helps address potential issues involving design, ground conditions and procurement before construction begins.
Willis said margin progression should benefit from the improving quality of the contract portfolio, predictable delivery against milestones and operating leverage as the business expands. Costain said it has an ambition to deliver operating margins above 5%.
The company also said contracts generally include inflation protection, with energy prices currently the principal source of cost pressure. Management said it works with customers to manage inflation and budgets rather than simply accepting cost increases.
Costain plans to provide further details on its growth drivers and capital allocation strategy at a capital markets event in London on Nov. 19.
About Costain Group (LON:COST)
Costain improves people’s lives by creating connected, sustainable infrastructure that enables people and the planet to thrive. Through the delivery of predictable, best-in-class solutions across the transport, water, energy and defence markets, we are creating a sustainable future and securing a more prosperous, resilient and decarbonised UK.
By bringing together our unique mix of construction, consultancy, engineering and digital services, we work strategically with our customers and suppliers to meet critical national needs.
