Cape(d) Crusader

Cape: This oil and gas centric support services group was only a few steps from being a financial basket case when Joe Oatley arrived as Chief Executive in 2012. He had performed very well in his previous CEO job at Hamworthy plc, but at first it looked rather like Cape was a step too far. However, Oatley tackled the ‘kitchen sink’ list which included a disastrous contract in Algeria and an ill-disciplined Australian market. Gradually the group has pulled round and stabilised although profits are still well shy of the 2011 levels, before all the problems emerged. They are exposed to key markets in the Middle East and North America and have expanded into new territories, whilst adding more specialist services to their offering. Whilst some fret about capital expenditure squeezes across the energy space, Cape are better placed as a significant maintenance provider. Pre-tax profits for the year to 31^st December 2014 are in the range £37m-£41m giving an eps of the ball park of 27p, with 10%+ growth seen in 2015. With good cash generation now in place, these eps can support a dividend this year of almost 14p. The recent good Capital Markets’ Day has seen the share price move up to 280p, but that is still only a PE of 10.4x, with a yield of 5% and growing. Given the recent history of the company I acknowledge that there are still risks of further problems, but at these valuations income growth investors must be tempted.  (Neil Cumming, 10th October)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

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