A third quarter update sees the company indicate that, while overall trading for the period was in-line with expectations, full-year operating profit will fall materially short of earlier guidance. It blames a contract in Qatar and wider competitive pressures in the region.
We warned about the lack of visibility at Cape back in early September after its interims led to forecasts being downgraded.
The impact of the rogue Qatari contract – where the company is being hit by operational difficulties – has not been quantified but has a slightly ominous echo of the ill-fated Algerian Arzew project which contributed heavily to two profit warnings last year.
In fairness, it is worth noting this Qatari contract pre-dates the new management team introduced last year and the controls they have put in place in the interim. In addition the impact on group earnings per share is expected to be mitigated thanks to its minority interest in the Qatar business and an improvement in the overall tax rate.
There was also some more positive news from the company in the form of an £45 million scaffolding contract for the Wheatstone liquefied natural gas (LNG) project in Australia. A decision on the award of the substantial insulation, fireproofing and coatings contract for the same development is expected shortly.
House broker Numis Securities moves from 'buy' to 'hold' with an unchanged price target of 300p and cuts its earnings per share forecasts for 2013 and 2014 by 8% apiece to 24p and 27.1p respectively.
Numis analyst Sanjeev Bahl comments: 'Unfortunately for the new management of Cape a historical project has come back to bite them. A $20 million productivity-linked insulation contract in Qatar has incurred operational issues and we expect a provision in the second half of 2013. The magnitude of this provision has not been released but management flag that margins in MENA (Middle East North Africa) are expected to be 'significantly' lower than the first half.'