It isn’t often we come across stocks on a low single-digit PE (price to earnings) multiple with a net cash pile almost equal to their market value but infrastructure and engineering group Costain (COST) is one.

Its half-year results were steady rather than spectacular – revenue was flat, operating profit was up 7%, both ahead of forecasts, and basic earnings per share were up 12.8% on an adjusted basis – but its valuation and net cash position made us do a double-take.

The Maidenhead-based firm, which is approaching its 160th birthday, describes itself as providing ‘connected, sustainable infrastructure that enables people and the planet to thrive’.

In plain English, the group is involved in the rail, road and transport sectors, the energy and water markets, and the nuclear and defence industries, which has its pros and cons.

On the plus side, projects tend to be big, and in most cases the customer is the government or a utility company so credit risk is minimal, but on the minus side delays with awards or halts to the schedule mean revenue and earnings can be lumpy.

That was evident in the first half, with frequent references to the ‘rephasing and rescoping’ of various transport works and the timing of customer procurement cycles.

Nor is infrastructure a high-margin business – the first half saw an improvement to 2.3% from 2.1% a year ago, and the firm says it is on track to meet margin targets of 3.5% in the next financial year and 4.5% the year after.

Yet none of this detracts from the fact the firm has excellent visibility of revenue, with a signed-for order book of £2.5 billion and a preferred bidder book of £1.5 billion, and free cash flow is improving to the point where the board is contemplating restarting dividend payments after four years of abstinence.

While the shares climbed 5% to 50p last week on the day of the results, that still leaves them 75% below pre-pandemic levels, and a market value of £151 million is only slightly more than its first-half £132 million net cash position (before £25 million or so of leases).

We suspect at that size the stock is now uninvestable for UK institutions as a £10 million position would make them a major shareholder. As one senior UK investor put it, ‘Welcome to the undervalued world of UK small caps.’

Analysts at Liberum have a ‘buy’ rating and an 80p price target. If we were in private equity, we would be taking a long hard look at Costain, and our guess is 80p per share probably isn’t even close to what the business is worth long term.

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