Costain Group Plc – 12 March 2024
As an example of a company I rated as having a low Y20 at the date of publication of its financial results on 12 March 2024 for the prior year is Costain Group plc.
| * | Metric | Value |
|---|---|---|
| Company Name | Costain Group Plc | |
| Financial Market Ticker | COST.L | |
| Year End Date | 31 December 2023 | |
| t | Turnover | £1,332,000,000 |
| gp | Gross Profit | £104,800,000 |
| pbt | Profit Before Tax | £30,900,000 |
| np | Net Profit | £22,100,000 |
| s | Average Number of Shares Diluted | 282,100,000 |
| p | Share Price (@ Close 11 March) | £0.68 |
| cap | Market Capitalisation @Close 11 March (s * p) | £191,828,000 |
| d | Debt (Borrowings + Lease Obligations) | £24,300,000 |
| c | Cash | £164,400,000 |
| voc | Value of Company (cap + d – c) | £51,728,000 |
| Y20 | Years to Get Back Investment (voc / np) | 1.67 |
This company has a low Y20 of 1.67 – which makes it a potentially very good investment.
This Y20 is unusually low but as I have followed this company for many years, I am aware of the problems it has faced previously with profit warnings, losses, a large share price drop and an “emergency” issuing of shares, all of which reduced the value of the company and lost investors money. It appears Costain Group has weathered the storm and is emerging back to sustainable profitability but this is only my opinion – in some ways this Y20 is “too good to be true” so be critical and look at other metrics to ensure you are comfortable. For example, ignoring debt and cash, (i.e. cap / np) the metric was 6.21, which was still in range as a potential investment; the turnover (t) was £1.332 billion which is over 10 times the market capitalisation; the net margin (pbt / t) was 2.3% which is low.
Whilst 2024 has seen an upward trend in stock markets around the world, and in particular here in the UK, Costain Group has still out-performed the market since the results announcement on 12 March 2024, when it was trading at £0.68 at the close of the day before, and is currently trading at £1.05 (at close on 23 August 2024) which is 54% higher in less than 6 months (with an additional 0.8p dividend paid during that time).
Is it always this easy to spot the companies which will make good investments?
No, share prices move based on investors buying and selling a company’s shares. If investors did not think the company was a good investment for the future the price would have gone down, even though on my analysis it is a good investment. The reason I use logic and analysis to value companies before I make an investment in them is because ultimately companies who are making sustainable good profits with a low Y20 will become attractive to other investors. If a company’s Y20 stays low for too long, then they will likely become a takeover target to a larger group or investment body, which will in itself increase the value of the share price.
Never invest in only ONE company!
As an investor, I strive to consistently make money not to strike it lucky once or twice, and so I have grown to respect the importance of managing a portfolio of share investments – as discussed in the next article.