Industrial services provider Cape (CIU) is up 17.5% to 178.6p as it guides for 2016 results to be materially ahead of expectations thanks to a strong contribution from all areas of the business in the last two months of the year.
REPAIRING THE DAMAGE
The gains repair some of the damage wrought by last November’s warning that litigation costs relating to its legacy asbestos operations could be worse than expected.
The company established a scheme in 2006 to settle claims relating to its asbestos factory in Barking which closed in 1968. The company acknowledged at the time that this could impact its ability to pay a dividend.
Analysts are currently pencilling in a dividend of 14p for 2016 and 2017 - implying a yield of nearly 8%. The robust performance of its three regional businesses is boosting cash generation and is expected to have a positive impact on net debt.
The better-than-expected full year outcome is all the more impressive when you consider the company endured a difficult first half.
NEW WORK
Alongside the positive update on trading Cape announces the award of additional work packages on the Chevron-operated Wheatstone natural gas project, near Onslow, Western Australia.
The board continues to see the 2017 outlook as ‘encouraging’, full year numbers will be published on 15 March. Before then legal proceedings between Cape and a group of insurers relating to the asbestos liabilities are set to commence on 16 January.
Canaccord Genuity analyst Alex Brooks reiterates his ‘speculative buy’ recommendation and 220p price target. He says: ‘Cape remains one of the few stocks in oil services to be trading at single-digit multiples (of P/E or EV/EBIT), and even taking into account its asbestos liabilities we believe it is materially undervalued.’
