Cape shares crash... again

Investors in Cape (CIU) have got that sinking feeling once again after a third profit warning this year sent the shares 29 per cent lower. The strong recovery after both previous warnings suggested investors believe there is value here, but we would advise bargain hunters to steer well clear this time. Cape has been hampered by a further slowdown in its Australian business and the review of the value of the group's assets in Australia is being extended group-wide. To top it all, chief financial officer Richard Bingham is leaving with immediate effect.

The slowdown in the Australian economy is a real concern because of the sheer quantity of assets Cape has in the region - some £238.7m in the latest annual report, of which £153.9m was goodwill and intangibles; writedowns here would make a serious dent in a balance sheet with net assets of £406m.

The reason for the scale of intangible assets in the region is that Cape went on a buying spree in the heady days of 2007, hoovering up three companies - Concept Hire, PCH and TCC. These assets are now under review after Cape said it had identified "a number of issues" relating to their value. Keith Morris, an analyst at Investec Securities, thinks a reasonable chunk of that goodwill in Australia could be written off. He forecasts adjusted EPS of 22.5p for the current year. However, the impact on reported pre-tax profit numbers will be far more severe.

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