Costain secures £3.3bn HS2 contract that could create 6,000 jobs
Engineering firm Costain has won a £3.3bn contract to design and build the tunnels connecting the HS2 railway to London Euston station.
This initial phase of the High-Speed Two (HS2) railway project, which controversially got the go-ahead from government in February, will create 6,000 jobs, Costain said.
Costain’s share price surged 23 per cent to 67.6p in early trading on the news.
HS2 will carry up to 18 trains an hour between London and the west Midlands when it eventually opens some time between 2028 and 2031.
Today Costain confirmed its joint venture firm with Skanska has won approval to design and construct the first phase of the project.
It said the contract “will involve the design and construction of major tunnels in the approach to the London terminus at Euston station”.
“It is estimated that Phase 1 of the works will create 6,000 jobs,” Costain added.
“To date, the joint venture’s contract with HS2 has been to undertake scheme design and site preparation for the civil engineering work,” Costain said.
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“The new contract marks the point where the work transitions from scheme design and preparatory work to full detailed design and construction.”
Broker Liberum called the HS2 contract award “very accretive” for Costain and recommended investors buy the stock at a target price of 100p.
“This already represents circa 25 per cent of Costain’s order book,” Liberum said. “There are other opportunities related to Phase 1 and also beyond in Phase 2.
“We therefore increase our FY 2021 and FY 2022 FD earnings per share by 15 per cent and 24 per cent respectively. We assume attractive terms and neutral working capital.”
Due to the ongoing coronavirus outbreak, HS2 construction is paused. That means the HS2 contract will not make a “significant contribution” to Costain’s profit until 2021 onwards.
But the FTSE Small Cap engineering firm added it has won a £210m design and construction contract to upgrade a section of the A30 north of Truro. That work will start imminently with completion due at the end of 2023.