The question for Thursday’s day ahead is whether troubled defence engineer Cobham Plc can make avoid making its sixth profit warning in the past year, as it releases full year results statement.
On February 16, Cobham sounded the alarm bells by warning the balance sheet is “clearly not strong enough to properly support the operations of the group”.
To make matters worse, the key KC-46 tanker programme in conjunction with Boeing has incurred a £150mln charge that will be included in the 2016 account. On top of all that, the firm seemed to suggest that things will get worse before they get better given the “challenging” conditions it expects again this year.
The group’s debt levels are probably one of the greatest causes of concern for investors at the moment. Cobham’s liabilities have grown to around £1bn. The money helped fund its acquisition spree over the past few years and analysts think it’s very close to overstretching itself.
“That’s the underlying problem really; too much debt to finance acquisitions that haven’t really paid off so it’s going to take some time to clear that out and start again,” explains ETX Capital’s senior markets analyst Neil Wilson.
“Their debt is up at £1bn – that’s three times earnings – and their covenants are three-and-a-half times [earnings], so all it would take is another write down and then it’s looking at breaching [the covenants],”
With the review still ongoing, Wilson is also mindful that more issues could yet be found that weaken the balance sheet further.
Investors will no doubt will waiting cautiously for tomorrow's results.
Thursday’s significant announcements
Final Results
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