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Highlights

  • COST has initiated a GBP 10 million on-market share buyback following a surplus.
  • The company confirmed H1 FY25 trading met expectations, with a work pipeline 4x annual revenue.
  • The company will suspend pension contributions and dividend parity for FY26 due to a 101%+ funding surplus.

Costain Group PLC (LSE:COST) is a UK-based engineering and construction company operating in infrastructure sectors including transportation, energy, water, and nuclear. The company provides design, consultancy, project delivery, and operations and maintenance services.

The company has announced the commencement of a GBP 10 million on-market share buyback programme following confirmation that its defined benefit pension scheme was in surplus as of 31 March 2025. The scheme’s funding level exceeded 101% for the second consecutive year, leading to a suspension of both company contributions and a linked dividend parity arrangement for a 12-month period starting 1 July 2025.

In a trading update ahead of its half-year results for the six months ending 30 June 2025, due on 20 August 2025, Costain stated that business performance remains consistent with the Board’s expectations for the full year. The company also noted progress on its target of achieving a 4.5% adjusted operating margin run rate during FY25.

The Board concluded that the GBP 10 million buyback executed under the existing shareholder authority is an appropriate use of capital given the company’s financial position, including a net cash balance of GBP 158.5 million at the end of FY24. The buyback will reduce the company's share capital, with all repurchased shares to be cancelled.

Costain has appointed Investec Bank and Panmure Liberum to manage the buyback process across two tranches of £5 million each. The first tranche begins immediately, and the second will commence following its completion. The entire programme is expected to conclude no later than 23 December 2025, depending on market conditions.

In terms of operational performance, the company continues to maintain a forward work pipeline exceeding four times its annual revenue. New contract wins in FY25 include projects in the nuclear energy sector with Urenco and Sizewell C, as well as expanded work under the Strategic Pipeline Alliance with Anglian Water. The latter involves the construction of 260 kilometres of strategic pipeline infrastructure aimed at improving water resilience in eastern England.

Costain’s ongoing frameworks across its customer base are expected to support further revenue generation, despite sectoral challenges. The company reaffirmed its previously communicated full-year margin guidance.

On dividends, Costain reiterated its commitment to a policy of dividend cover equal to three times adjusted earnings, with the aim of providing room for potential future increases once the dividend parity arrangement ends. For FY24, the company’s final dividend was doubled, though the interim dividend represented just 17% of the full-year total. For FY25, the interim dividend is expected to return to around one-third of the full-year dividend.

The surplus pension valuation marks the second consecutive year in which the scheme’s funding level has exceeded the required threshold. As a result, the company will pause contributions from July 2025 to June 2026.