This morning the company released an RNS saying that bid talks have been going on - it's funny how the price always rallies massively the day before one of these statements... but there's another 40% rise this morning - so how much is this worth? Is it worth buying this at this price
Cape was always going to be a buyout candidate...with good revenue visibility (45% long term contracts), a large client base in the energy sector and a very lowly rating compared to it's peers. But the high debt burden has been a concern of late as has the proportion of sales in the slowing North Sea region (49% of sales)- and many oil services companies have been coming under pressure due to the deteriorating financial situation of customers (see the Lamprell price reaction to a probable Scorpion Offshore writedown of $55m). With a large debt balance at £174m as at 30th September there hasn't been much room for error in Cape's cash management and may explain some of the weakness
Forecasts were for 29.03p and the recent interim statement stated that business was significantly second-half weighted, while the chairman stated the full year figures would be ahead of forecasts. Adjusted profit for H1 was up 103% at £29.9m on an Enterprise Value of about £250m.
But on the other hand, cash at hand was down to £8m at interims... Operating cashflow was £13m, but Investing and Financing outflows overwhelmed it for a net cash change of roughtly -£7m.
So what is a company such as this worth in this climate... As a rough and ready calculation (very rough) With EBITDA of roughly £55m for the full year it depends on the multiple given by a buyer... what could they pay? The heady heights of 12X + EBITDA multiples that we saw private equity paying are long gone... would it be worth 6 times in this market?
At that rate, the EV would need to be £330m ... but there's £160m in debt at year end... which might suggest that there could be plenty of upside even from here as the mcap would need to reach £180m.... on the other hand, given the rapidly deteriorating financial and business environment a much lower multiple would be given to this years numbers... so a bid may come in at more like £1 max.
