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Reviewing last month from Cobham (COB) ANOTHER profit warning I concluded, with the shares at 140p, that there could be worse to come and that it was a bargepole stock. Now, on the back of a further update, the shares are currently heading towards 100p.
This is as there has been much worse to come. Firstly, “underlying trading profit” is indeed expected to be lower than that noted in January – and it’s then vast ‘exceptionals’ and write-downs ahoy.
The January profit warning included “in particular, there is significant uncertainty surrounding the outcome of the KC-46 tanker programme”. The latest update includes on this that “great progress has been achieved operationally and commercially in the last few weeks”. Sounds encouraging, oh wait “ …with clarity gained that the costs falling to Cobham's account are far greater than the board understood last year”!
It is also stated that “whilst market uncertainties undoubtedly exist, the ability of the group to forecast performance is also not as strong as it should be and these factors lead to the early view for 2017 at this stage of the year having a wide range of potential outcomes”.
However, any glimmer of optimism is then covered by “the group has many operational issues which require attention in addition to reversing the current negative performance trajectory”, “the balance sheet is clearly not strong enough to properly support the operations of the group, given the important role it plays in many customer programmes” and that “the board considers that delivery of a similar performance to that of 2016 in 2017 may be challenging”.
New CEO David Lockwood claims “the medium term provides significant opportunity with encouraging market dynamics and strong product and programme offerings”, but for now this looks to be an almighty mess. Attempted bailout fundraising ahoy? Certainly bargepole ahoy.
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