Cape exits recovery phase

Cape's litany of problems included write-offs on a fixed-price UK rig maintenance contract, deterioration in the performance of the group's onshore Australian business, and delays at its Arzew project in Algeria. Ultimately, however, the diverse nature and geographic scope of problems suggests management had taken its eye off the ball. Cue the arrival of Mr Oatley, a turnaround specialist, and finance director Michael Speakman. Both men have turned around the fortunes of underperforming companies in the oilfield-services sector – Mr Speakman was the finance chief at Expro International when it was sold to private equity in 2008.

Messrs Oatley and Speakman have put new risk controls into place, together with management information systems designed to avoid the uninformed decision making that put the group in trouble in the first place. It amounts to a more co-ordinated approach to project management, but there are material benefits in train. Obviously, the re-structuring initiatives initially pushed the group into losses (see table), but its bosses believe Cape is poised to benefit from a substantial reduction in group overheads. This should become clear in the remainder of this year and next.

The problems in 2011-12 followed a lengthy period of improved fortunes when Cape finally sorted out the burden of its liabilities to asbestosis claims, which were ring-fenced. Those serve to highlight that the principal risk for Cape – and, indeed, most companies operating in the oil services sector – is working out old projects. Despite management's best efforts, a $20m (£11.8m) low-margin project in Qatar is still unfulfilled, while the Wheatstone LNG contract in Australia could also be subject to delays. Throw in currency headwinds that stem from sterling's strength, and Cape's route to recovery is still not guaranteed to be plain sailing.

That said, there are factors that could give the share price a quick boost when management updates the state of Cape's order book. That might include details linked to a £140m insulation and fire-proofing contract on the Ichthys LNG installation in Australia. Over the long-haul, Cape stands to benefit from the much-needed ramp-up in investment for the UK power sector.