Costain (LSE:COST) has agreed revised terms for its defined benefit pension scheme, removing a long-standing dividend parity restriction and eliminating the requirement for additional cash contributions through to 2031. The change releases capital to support enhanced shareholder returns, reflecting the company’s strengthened balance sheet, pension scheme surplus and robust trading performance in FY25.
Operational and financial highlights
On the back of its improved financial position, the board plans to adopt a new dividend policy targeting 3.0x cover. This shift is expected to almost double cash dividends in FY26. In addition, Costain intends to launch a £20 million share buyback programme next year, while continuing to assess its capital structure for the potential of further shareholder distributions.
Operationally, FY25 trading is expected to be in line with market profit forecasts. Adjusted operating margins are anticipated to exceed the group’s 4.5% target, while year-end net cash is projected at around £190 million, ahead of consensus expectations, supported in part by favourable working capital timing.
The group has also secured a number of significant long-duration contract wins, most notably its appointment as a utilities delivery partner at Sellafield under a framework valued at up to £1 billion over 15 years. Additional awards across nuclear and highways further underpin management’s confidence in continued progress during FY26, with expectations of a more pronounced improvement in performance from FY27 onwards.
From an investment perspective, Costain’s outlook is supported by a solid financial base, positive share price technicals and supportive corporate developments. While operating margins remain relatively modest and cash flow efficiency has shown some softening, valuation appears reasonable and recent contract momentum strengthens the overall investment case.
More about Costain
Costain Group PLC is a UK-based infrastructure solutions provider delivering complex engineering and construction projects across the transport, water, energy and defence sectors. The company focuses on providing predictable, sustainable and digitally enabled solutions that support a more resilient, connected and decarbonised UK infrastructure network.
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