Low-priced stock has a bright future thanks to a fat order book and a robust balance sheet

Investors value Costain’s operations, which are forecast to make £40m in pre-tax income, at just £25m, which will provide them with some downside protection should anything go wrong at the civil engineer

We seem to be on the right track with the infrastructure and engineering expert Costain. This month’s full-year results for 2023 read well and suggest our investment case of a fat order backlog, improving operating margins and increased cash returns to shareholders is playing out nicely, especially as the company can also point to good order intake from the water and nuclear industries here in the UK.

Best of all, the valuation is still low. The projected dividend yield of 2pc may not have income-seekers hopping up and down on the spot, but the payment per share is expected to grow this year after 2023’s return to the dividend list and that is down to both healthy cash flow and a net cash pile.

Adjusting for leases and a pension surplus, Costain ended last year with £194m in net cash on its balance sheet, more than the current market value, and the equivalent of 88pc of the company’s £219m in net assets.

Put another way, investors are valuing Costain’s operations, which are forecast to generate £1.3bn in sales and £40m in pre-tax income, at just £25m.

That low price tag will hopefully provide us with downside protection should anything go wrong, and upside should the Maidenhead-based company meet its goal of taking its operating return on sales to above 5pc, from last year’s 3pc mark. Investors should hold on to Costain as it can keep the good news flowing.

Questor says: Buy

Ticker: COST

Share price at close: 67.4p

Update: Shanta Gold

Whether a 10pc increase in the offer price from the bidder and global conglomerate ETC Holdings is enough to sway shareholders in Shanta Gold remains to be seen. If the deal does go through at 14.85p a share, with a dividend of 0.15p a share on top, we will bag a total return in excess of 50pc on our investment from January 2023.

Given this column’s dismal record with junior miners, it would be more than enough to keep us happy.

That said, we can see why some shareholders may feel that even the higher bid represents a low-ball price. It equates to a market value of £156m for a company whose net assets are £133m, according to the last set of results. They were the first-half figures for 2023 released in September. That price tag implies a price-to-book, or price-to-netasset-value, multiple of 1.17 times.

However, Newmont’s bid for Australia’s Newcrest in 2023 valued its target at 1.7 times and there is a good possibility of Shanta Gold growing its book value in future, should retained earnings flourish as expected, thanks to both increased output from its New Luika and Singida mines in Tanzania

‘Adjusting for leases and pension surplus, Costain ended last year with £194m in net cash on its balance sheet’

and an all-in sustained cost (AISC) of production of $1,200 to $1,400 an ounce. With gold trading at $2,175 an ounce, profits should start to pour out of the ground, if all goes to plan, and the metal’s price stays firm.

There are caveats to this. Newcrest is a more mature and bigger operation than Shanta, with 2.1 million ounces of annual gold output at an AISC of $1,093 at the last count and the stock offered a higher dividend yield than Shanta’s before the acquisition by Newmont.

Investors also place a higher multiple on operations in Canada and Australia relative to ones in Africa, for geopolitical reasons, even if Tanzania is one of the most politically stable nations on the continent. That’s in contrast to, say, Mali or Burkina Faso, where coups in 2021 and 2022 respectively continue to weigh on sentiment towards diggers such as Resolute Mining and Endeavour Mining.

Intriguingly, ETC’S bid for Shanta is the latest in a growing list of deals in the gold mining industry. Barrick Gold swallowed up the then FTSE 100 constituent Randgold Resources in 2019, when Newmont also snapped up Goldcorp. Agnico Eagle and Kirkland Lake Gold merged in 2021 and, in 2023, Agnico Eagle and Pan American Silver bought and split Yamana Gold before Newmont pounced on Newcrest.

The New York Stock Exchange’s Arca Gold Bugs index is no higher now than in November 2003, when gold was $390. Gold executives are clearly paying attention to this disconnect, judging by the rash of deals, even if stock markets are not, and Questor is therefore happy to keep faith in both Egypt-focused Centamin and Resolute Mining. Shanta’s 2023 results are due on Thursday and the shareholder vote on the deal takes place the week after, on April 4. Hold on to gold miners: they could be primed to shine.