Date: Monday 11 Jun 2012
Investec has halved its target price for energy markets-focused engineer Lamprell from 200p to 100p following last week's profit warning.
After the market closed on Thursday, Lamprell revealed that it now expects to make a half-year loss of $15-20m, compared with earlier guidance of "a small loss". The company also reduced its targeted net profit margin from 3.5% to 2.5%.
"A second profit warning in three weeks suggests the company has not got a handle on its fixed price contract execution strategy. We believe management are tainted by a track record of cost overruns and poor profitability. The margin impact due to rig delays is likely to drag into 2013 and even beyond," Investec said in a research note on Monday morning.
The broker said that the recurrence of cost overruns and poor profitability on fixed contracts "raises questions as to management’s ability to execute profitably, and increases the risk of missing forecasts in future years."
"Indeed trying to rate the company on such forecasts seems of little use until we get some clarity on current contract execution and profitability; we won’t get this until FY12 results."
Analysts said that the stock is likely to continue reflecting these concerns to trade at a "significant discount" to its peers. The broker reiterated its hold rating on the shares, highlighting its preference for Cape (buy) as a recovery play.
Despite the negative comments, Lamprell's shares were trading 5.38% higher at 89.05p on Monday morning, rebounded after steep sell-off on Friday.
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