My favorite FTSE share is up 110% but still cheap with a P/E of 7.7!

The Costain group (LSE: COST) is fast becoming a favorite of mine FTSE share of everything. It has more than doubled in value over the past year and jumped another 4% this morning (August 21) after publishing excellent first-half results.

The smart infrastructure specialist has given investors a rough ride in the past. It was fueled by wider volatility around the outsourcing sector, which sank Carillion in 2018.

A growing share of small amounts

Costain's share price then fell more than 80% in 2020 as the pandemic disrupted operations and profits. But other problems had arisen. Costain made a loss of £90m following the settlement of its Peterborough & Huntingdon and A465 contracts, as well as other exceptional items.

It is now growing strongly, and its shares are up 110.22% over the past 12 months. I bought them on the 29th of November last year, and personally I am up 60%, including dividends. He is one of my favorite players.

Costain recently posted an 8.7% rise in adjusted operating profit to £16.3m in the six months to 30 June. This was run by “improved Transportation performance resulting from better margin mix available on our contracts, and increased volumes,” it said.

Adjusted operating margins jumped 20 basis points to 2.5%. Costain expects these to reach 3.5% in 2024 and 4.5% in 2025. They're still thin, in my opinion, but at least they're getting wider (assuming they achieve those goals).

Revenue in the first quarter fell by 3.8% to £639.3m, mainly due to the completion of certain projects, including major works at Gatwick station.

However, the position of the group's work has moved forward now “very well” for £4.3bn, following contract wins across the board, CEO Alex Vaughan said. He was strong enough to announce a £10m share buyback, starting immediately. Considering Costain's market cap is just over £273m, that's a lot of money in comparison.

Dividend income too

Costain's income will always ebb and flow, depending on when contracts are awarded, and when they expire. However, that large order book gives investors excellent visibility into future earnings.

This group remains highly vulnerable to major forces such as the state of the economy and government finances. Money is tight, and Chancellor Rachel Reeves has recently released some infrastructure products.

Costain shares still look cheap trading at 7.75 times earnings, despite the long term. Even better, its cash balance has grown to £166m. That's just over 60% of its market value, which adds a layer of security.

It earns interest on that money, which along with its increase in profits helped lift adjusted earnings per share by 27.3% to 5.6p. The downside is that interest payments will inevitably fall as the Bank of England lowers base rates.

A 1.5% yield forecast isn't earth-shattering, but it's still pretty good considering recent share price performance. Shareholders' payouts are covered 9.1 times by retained earnings, which gives a lot of room for growth.

I am happy to hold Costain in my self invested pension (SIPP). I expect it to remain a favorite for some time to come.