Earlier this month, construction materials firm Alumasc (LSE: ALU) reported record levels of revenue for its most recent financial year, as it shifted its focus purely to building products for the first time in its 70-year history.
Sixth year of growth
The Kettering-based group supplies the UK construction market with a wide range of products and services, including solar shading & architectural screening, roofing & walling, water management, and housebuilding & ancillary products. All of the group’s businesses enjoy strong positions and brands in their individual specialist markets, with 80% of sales driven by building regulations and specifications due to the performance characteristics offered.
For the financial year to June, the group delivered a 14% increase in revenues to £104.8m, reflecting strong export sales growth as well as continued growth in the domestic market. Here in the UK, revenues grew by 4%, comparing very favourably to the overall construction market growth rate of just 1.8%. Group earnings advanced for the sixth consecutive year, with underlying profit before tax up by 9% to £9m, compared to £8.3m for FY2016.
Squeeze on margins
It wasn’t all plain sailing, however. The combination of weaker sterling and a recovery in certain commodity prices raised costs for many of its products, which in turn impacted on margins, particularly for work already in the pipeline. While able to respond to these cost increases to various degrees, particularly with regard to future work, there was an inevitable squeeze on margins in the earlier part of the year.
But despite the relatively high level of political and economic uncertainty at the present time, I’m still optimistic about Alumasc’s future. Its chosen businesses have strong strategic positions in specialised market segments capable of growing faster than the overall construction market. Alumasc’s shares not only look grossly undervalued trading at just eight times forecast earnings, but also come with a nice little bonus yield of 4.5%.
Another strong performance
Small-cap engineering group Costain (LSE: COST) is another London-listed firm whose shares can be picked up for less than a fiver each. The business deploys technology-based engineering solutions to meet urgent national needs across the UK’s energy, water, and transportation infrastructures.
Interim results announced last month revealed another strong performance in the first half of the year, with 34% growth in underlying operating profit to £21.2m and a 10% interim dividend increase. Total group revenues (including share of joint ventures and associates) increased to £874.5 from £791.4m in the previous year, with underlying pre-tax profits up 30% to £18.3m.
Smart infrastructure solutions
Costain is transforming rapidly to become the UK’s leading smart infrastructure solutions company. Underpinned by legislation and regulation, the group is providing the technology-based solutions demanded by its clients who are spending billions of pounds to meet the UK’s ever more complex infrastructure needs.
The shares are up by a third in the last 12 months, and currently trade on a fairly modest P/E rating of 13 for the year to December.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.