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Are Persimmon plc and Costain Group plc unmissable buys after today’s updates?

Image: Persimmon. Fair use

As the FTSE 100 flies to fresh highs the following two companies have issued promising trading updates. Could they help you chase the market even higher?

Safe as houses?

Many expect this to be a tough year for the housebuilders, as Brexit uncertainty and the threat of rising interest rates threaten to knock buyer confidence. Personally, I think the danger has been overblown, given the intense UK housing shortage, and the recent sector sell-off could prove a buying opportunity.

Housebuilder Persimmon (LSE: PSN) has scattered the sceptics this morning by reporting an 8% rise in 2016 revenues to £3.14bn, with new home volumes up 4.1% to 15,171, making an extra 599 completions. The group’s average selling price increased by 4% from £199,127 to £206,700. Healthy customer demand, low mortgage rates, and the attraction of buying a new-build are all sustaining sales. 

Room for development

Growth prospects look promising, with Persimmon opening 255 new development sites across the UK during the year and acquiring 18,700 plots of new land in 83 locations. Its cash balance at 31 December stood at a healthy £913m, up from £570m in 2015.

Markets welcomed the update with the stock up 4% in early trading, but it wasn’t all good news. That 8% year-on-year revenue growth was down from the 12% in the first half of the year. Annual sales growth for the second half slowed to 15% from 17% in the first half. Management also says it remains “mindful” of the impact of Brexit. 

These are still attractive results, especially from a cash-rich company that’s trading at an affordable-looking 10.46 times earnings, and yielding 5.89%. Persimmon has boosted rival housebuilders, with Barratt Developments and Taylor Wimpey up around 2% this morning. The sector appears to be standing on firm ground.

Contract killer

Construction and civic engineering firm Costain Group (LSE: COST) drew a less excited response, with the share price clicking up just 0.91% so far. Its year-end update shows the company continuing to perform solidly and expecting to deliver full-year results in line with the board’s expectations.

Costain said its major customers are spending billions of pounds upgrading and renewing the UK’s energy, water and transportation infrastructures, helping it secure a string of new contract wins during the second half of the year. These include the High Speed 2 South Enabling Works and the Area 14 Maintenance commission for Highways England.

Steady Eddie

This helped maintain the order book at a record £3.9bn, while secured revenues for 2017 rose slightly to £1.2bn, up from £1.1bn in 2016. Its preferred bidder position tops £500m and it boasts a strong net cash position of £100m. This morning, Transport for London announced a £500m deal which will see Costain carry out major road improvement projects over the next four years alongside Morgan Sindall and Skanska.

Costain has rallied strongly from its post-Brexit slump but today’s muted market response suggests a lack of excitement over this steady state stock. Its valuation of 14.22 times earnings and 3.02% yield also look steady, with Brexit fallout the only concern. However, forecast earnings per share (EPS) growth of 15% in 2017 add a note of excitement, putting the yield at 4.1%. Costain certainly looks to be on the right road.

The doom-mongers said Brexit would be a disaster for the UK, until the FTSE 100 surprised everybody by rebounding to new highs.

However, this is still a phoney war and the turbulence may return with a vengeance once Prime Minister Theresa May triggers Article 50.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.