Buy Cape (CIU) at 220p
Argues Lucian Miers, the Bard of the Boleyn
You will no doubt have noted that my article on GVC was withdrawn after threats of legal action and replaced with an apology. If you look at the charts of all those who have threatened to sue myself or Evil over the years you would find a fairly consistent pattern which no doubt those fine upstanding fellows at GVC will be sure to buck. While I do not advocate throwing a teddy on this particular stock, Evil’s bon mot about those who spend time and shareholders money on hiring lawyers springs to mind: “It is not merely an invitation to short, but an obligation.”
In November 2008 I recommended buying oil services group Hunting (HTG )at 382p (http://sharecrazy.com/beta/daily/1016/the-bard-of-the-boleyn-is-hunting-for-a-bargain.) I am still a big fan of Hunting but I have sold at 600p for a 57% gain as I believe that another oil services group, Cape (CIU) has more potential for now so I have bought these at 220p.
Just as bear trades often make sense in companies whose share prices have already fallen 90%, so one should not be unduly concerned about getting on board a stock that has ten-bagged if the price is right. Cape has indeed risen hugely from 17p in the dark days of January last year when the market assumed that its debt would overwhelm it and that the oil industry was all but finished.
Since then net debt has fallen sharply to around £115 million at the end of Dec 2009 and earnings per share are expected to have risen slightly to 33.8p for 2009. For the current year forecast earnings are 36..5p which puts the shares on an undemanding PE ratio of 6.1 times, a big discount to the peer group.
The company has reinvented itself since it used to be in the asbestos game which nearly broke it in the nineties. Indeed it hasn’t paid a dividend this millennium. But, as the share price rise suggests, these old problems are now firmly behind them.
The company reports prelims for 2009 on March 11th and stated on Jan 6th that profits would be “at least as good as market expectations” It has announced a couple of contract wins since then and all eyes will be on what is stated about trading prospects for this year.
Sterling’s weakness against the dollar also helps Cape which have sources of income that are well diversified both in currencies and regions of the world.
I think that at 220p the shares are good value and that next weeks results will underline this. We may even get the first dividend in 11 years which would do no harm.
Lucian Miers, aka The Bard of the Boleyn, gazes out from his 15th floor flat in a Newham Tower Block and is East London’s most feared short seller.
Posted by ShareCrazy on Mar 3, 07:55 AM in Comment- Post to: del.icio.us
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