Cape to benefit from surge in global energy demand

ENERGY services firm Cape reported a small drop in its first-half pre-tax profits, hurt by lower levels of activity in the Gulf region, but said it would benefit from the rising demand for global energy.

The company, which provides insulation services to liquefied natural gas terminals, said it was on track to deliver full-year results in line with its view, primarily driven by demand for its construction support services.

The number of planned outages in the power sector in the United Kingdom – its largest market – is expected to drive higher revenues in the second half, said Cape.

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Interim dividend was raised by 12.5 per cent to 4.5 pence, added the company, which has clients including oil giants like BP, Shell and ExxonMobil. Adjusted pre-tax profits from January to June fell to £34m from £35.5m last year. Exceptional charges of £3.5m related to the move to main market, shifting its tax-base overseas and cancellation of its bank facility.

Revenue rose marginally to £335m.

Tim Eggar, the new chairman, said: “Cape has a unique combination of capabilities and competences and an outstanding safety performance.

“We are therefore ideally positioned to benefit from the upturn in demand for our construction support services which is driven by the forecast increased capital spending in our sector and the global demand for energy. We are on track to deliver full year results in line with the board’s expectations.”

Martin May, chief executive, added: “Once again Cape delivered a solid first half performance based on continued superior execution and margin capture.

“In overall terms, revenue was in line with our plan and with our high levels of revenue visibility, we confidently expect a return to revenue growth in-line with our double digit target range in the second half. With Cape’s late cycle positioning we enjoy excellent visibility of contract pipelines and we see momentum building.

“The increases in industry capital expenditure with a raft of major project starts and approvals in our key geographies give me confidence that Cape is very well positioned to achieve our organic growth targets.

“We’ve also completed two bolt-on acquisitions and entered three new territories so far this year and we see an increasing list of opportunities in our key markets.”

Investec Securities maintained its buy recommendation and said the stock looked undervalued.

A note from analysts said: “We currently expect a recovery in the Middle East from the second half of 2011 onwards, supported by contract awards in the first half.”

Analysts at Collins Stewart added: “The order book is building across the key divisions, and that there is the likelihood of further, not insignificant newsflow over coming months. We remain buyers.”

A note from JP Morgan Cazenove said: “We make no change to our full-year 2011 estimates and continue to buy into the name ahead of expected awards in the Australian LNG market.

“These awards should reinforce an attractive medium-term growth outlook and potentially trigger near-term earnings momentum for Cape, which in our view is not sufficiently reflected in current valuation multiples.”

Numis analysts said the company is undervalued compared to rivals. Earlier this year, Cape set out plans to establish a new UK-listed holding company with its tax base in Singapore and Jersey, six weeks after the Government raised taxes for oil producers and banks.

The coalition Government increased taxes on oil and gas production to 32 per cent from 20 per cent to help fund broader corporation tax cuts and lower fuel duty for hard-pressed consumers. Cape said at the time that the £2m restructuring follows its growing international presence.

Over the next five years, the company, which provides insulation services to liquefied natural gas terminals, said it expected business to be driven primarily from the Pacific Rim and Far East regions.

The company has operations in Wakefield and Doncaster, but derives more than two-thirds of its profit from outside the UK.

Shares, which have gained 19 per cent since the beginning of the year, closed down 6.75p last night at 480p.

Cape said it anticipated an entry into the FTSE 250 index in September.

Links with region loosened

Cape’s story stretches back to 1893 when it was founded as an importer and manufacturer of insulation materials.

It opened its first factory a year later in Italy, followed in 1896 by its first in the UK.

Over the next half century, the company grew quickly as it bought and built factories in the UK and overseas.

In 1939, it started processing asbestos at Acre Mill in West Yorkshire. In 2006, the group created a £40m asbestos fund for claimants.

The company’s links with Yorkshire diminished in 2008 when it moved its group head offices to Uxbridge, near London.

This year, the company established a Jersey-incorporated holding group and moved its headquarters to Singapore.