Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.
What: Shares in international engineering and construction group Costain Group (LSE: COST) took a beating in early trade this morning, plunging more than 18% following the news that it proposes to raise around £75m, of which £25m is to be gained via a firm placing, while the remaining £50.1m is set to be raised through a placing and open offer.
So what: The open offer consists of just under 33.4 million new ordinary shares at 225p each, which — in much the same way we saw Barclays shares tumble after announcing its rights issue last year — has caused the share price to fall from yesterday’s close of 319.5p.
Management have stated that they expect the fundraising to “enable Costain to take greater advantage of the opportunities in its chosen markets and thereby accelerate the Group’s medium and long-term growth prospects”, in other words allowing the company to bid for a greater number of large-scale projects, among other advantages.
So what: Costain also revealed its final results for the year ended 31 December 2013 this morning, with highlights including a 12% increase in underlying operating profit to £27.4m, while it also increased its order book by 25% (to £3bn). Elsewhere, management also lifted the dividend by 7% to 11.5p, putting Costain on a yield of 3.4% to match the average of the FTSE 100.
All of which will leave investors asking questions — do the strong results combined with the decline in share price mean that Costain is a falling knife waiting to be caught? Or does the performance of its shares over the last 12 months put you off? Well, it’s up to you whether today’s news combined is enough to make the company a buy.
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> Sam does not own shares in Costain Group.