LONDON -- Cape (LSE: CIU.L ) shares sit at 231.01 pence at the time of writing, an increase of 19.9% from last night's close at 192.60 pence. The reason? Half-time results, which included the information that pre-tax profits were down 65% year on year.
However, that figure was expected since the engineering services contractor had previously issued a profit warning due to a sharp deterioration in the trading performance of its Far East/Pacific Rim division, with margins falling around 50% there -- and the shares slumping almost 40% in kind.
What has encouraged investors to pile into the shares this morning was the unexpected surprise that revenue growth increased by 9.8% in the half-year ending June 30, and the interim dividend was maintained at 4.5 pence.
Shareholders would be forgiven for expecting bad news after several blows in the last year -- a 29% slump in the share price was caused by management's announcement of "the risk of project scheduling delays during 2012" in November 2011, while May this year saw a slide of 27% when the firm warned of problems with a contract in Algeria that would cost the company in the region of 14 million pounds, and finally the aforementioned near-40% plunge at the beginning of this month.
Cape Chief Executive Joe Oatley commented:
In my first few weeks at Cape I have focused on gaining a rapid understanding of our businesses around the world. While this is clearly a challenging period for the Group, I am pleased to say that, having carried out an initial review of all of our operations, I continue to believe that the core of the business is fundamentally strong. Outside the Far East/Pacific Rim Region and the Arzew project in Algeria, the Group's operations are performing in line with expectations. Our near-term focus is on addressing the operational issues in Australia and ensuring that we have the foundations in place around the Group to deliver consistent long-term growth in earnings.
In today's interim results, a substantial forward order book was also declared, amounting to 920 million pounds, compared to 830 million pounds at the same stage last year, providing hope that expectations for the remainder of the year can continue to be met.
Maynard Paton wrote at the beginning of August that Cape has a history of slumps, but many investors still have it on their watchlists because of its fantastic recoveries -- "between 2000 and 2002, the shares crashed 90% to as low as 6p, but went on to expand 50-fold within five years," as Maynard pointed out.
So where there is risk, there is opportunity. If you are keen to earn long-term returns from shares, this free Motley Fool report -- "Ten Steps To Making A Million In The Market" -- can help you on your way. The report explains how tracking down small, undiscovered companies is a vital step on the path to the magic million milestone -- and catching a falling knife at the right time can yield some fantastic returns. The "Making A Million" report can be downloaded immediately, and is for ambitious investors only!
Investing is by no means easy in today's uncertain economy. That's why we've published "Top Sectors for 2012" -- our guide to three favorable industries. This free report will be dispatched immediately to your inbox.
Further Motley Fool investment opportunities: