Questor: two firms knocked off course by coronavirus – and how they rose to the challenge

Last week we tipped Ceres Power – a recommendation that has not got off to the best of starts it must be said – on the strength of a conversation with Matt Evans of Ninety One, the fund management firm. Previous discussions with him have given rise to no fewer than three Questor tips so we will devote this column to updating readers on them.

Update: Costain

“Challenging” is how Mr Evans described the past year for the contracting company.

First he said it had suffered two problematic contracts: one for the improvement of the A465 “Heads of the Valleys road” in South Wales, which had involved cost overruns, and another with National Grid.

“This has been a real impediment,” Mr Evans said. “These problems have cost Costain money and it has had to make provisions against the losses.”

Then, of course, coronavirus came along and caused, in the words of the firm’s chief executive, “significant challenges”, although by August all contracts were operational with the necessary safety measures in place.

“The epidemic put a strain on the balance sheet and as a result the company raised £100m from investors in May,” Mr Evans said.

Things were now looking brighter, he added.

“Costain has a very good pipeline of contracts over the next few years and the risk of future problems with contracts such as the A465 has been reduced. After a really hard year the outlook for infrastructure spending is shaping up well and Costain should play an increasingly important role.

“After a full review of its strategy and the appointment of a new chief financial officer, I think it is now on top of the challenges. Meanwhile, all the positive features of the business we discussed initially – its resilient margins and the scope for its long-term partnerships with customers to save them money, for example – remain in place.”

The shares have fallen severely since our tip two years ago but in view of the positive developments we will hold on.

Questor says: hold

Ticker: COST

Share price at close: 58.9p

Update: FDM

FDM is a recruitment firm with a difference: it trains its own staff, often graduates, in areas such as IT and then sends them off to work for its largely blue-chip clients.

It has also faced difficulties during the pandemic, Mr Evans said, but it too has kept on the front foot.

“The shift to working from home has been a problem but it was able to make a quick transition to remote training,” he said. “This does involve extra costs but the ongoing benefits of the change could be material: it could, for instance, allow the firm to train more people if it doesn’t need to accommodate them on its own premises and this could enable it to grow more quickly.

“Its decision to continue to pay its ‘Mounties’, as it calls its staff, has also cost money but has enhanced its reputation. We think it has taken strong decisions in a difficult period and looking after its key people, even at a cost, was right.”

The shares stand 6.3pc higher than when we tipped them in June 2018.

Questor says: hold

Ticker: FDM

Share price at close: £10.56

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Update: Boku

Another firm with an unusual business model, Boku allows certain online services to be paid for via your mobile phone bill. The ability to avoid the need for a bank account or credit card can be particularly valuable in emerging markets, where normal banking services are not always available.

This was not the kind of business to be affected by lockdowns – quite the contrary.

“People stuck at home have been spending more,” Mr Evans said. “This has proved the value of Boku’s model of giving people more ways to access digital services.”

The share price is 76.4pc higher than when we tipped the firm just over a year ago but we’ll hold on for more.

Questor says: hold

Ticker: BOKU

Share price at close: 145.5p

Correction: In our column of Jan 19 we stated a figure for Whitbread’s earnings per share but omitted to adjust it for the company’s recent rights issue. This had the effect of making the shares seem more cheaply valued relative to earnings than they were in reality. This error does not affect our hold recommendation. We apologise for it none the less.

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