Scaffolder, painter and cleaner for the oil services & gas sector, Cape, has revealed delays on a gas project in Arzew Algeria will see £14m wiped off this years results. The announcement shocked analysts and shareholders alike, as only four weeks ago Cape said trading was in line with expectations after a solid start to 2012. Broker Investec has subsequently downgraded forecasts for adjusted pre-tax profits by X%, from £73.8m, to £Xm, giving EPS of Xp.
Cape said a review in mid-April found no material concerns, but a further review in mid-May identified the additional costs and that the project will now produce a significant loss. Analysts at Numis thought a combination of new geography, new project team and poor supervision were to blame. Cape said the project was an isolated one-off but it the contract blunder comes after Martin May abruptly stepped down as chief executive on 29 March and barely seven months after a £2.2m charge for an offshore contract in the UK.
The Arzew project was due to start in March 2011, however work didn't ramp up until November 2011 at which point Cape threw nearly 1,000 workers at the problem. It appears this didn't work and worse management didn't know the project was way off course until now.
Investec says...
Northland Capital says...
Sell. With the company having identified a loss making contract last year, today's announcement raises further questions about operational control issues on specific contracts. Factoring the loss into our current forecasts for 2012 would cut adjusted pre-tax profits by 20 per cent to £58m. Our forecasts are under review and until we get greater clarity on this we move our recommendation to Sell.
