Liberum cuts target price on Costain

Analysts at Liberum cut their price target on British construction and engineering company Costain's shares from 350.0p to 220.0p on Thursday, following an adverse court judgement in its dispute over a Welsh motorway project.

Liberum pointed out that at the halfway point of the year, Costain had indicated that the Welsh government had effectively appealed the decision on A465. However, the new decision split the responsibility for the design information with no final agreement.

Costain was now in active dialogue about the resolution of the contract but Liberum expected the decision to have an impact of roughly £20.0m on its underlying earnings for 2019 and a £40m impact on year-end cash.

"Management now assumes that the contract is loss-making, which is disappointing given that it is a target cost, cost re-reimbursable contract. Costain has not recognised any profit on the contract," said Liberum.

"Management believes that there is nothing else of a similar nature in the order book. The £20m impact is Costain's assessment of its share of the pain as a result of the arbitration decision."

Elsewhere, Liberum, which kept its 'buy' rating on the firm in place, stated that trading appeared to be in line with expectations despite highlighting "a variety of challenges", including delays on the Smart Motorways project and the transition from AMP6 to AMP7 in water.