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New Saipem profit warning rattles investors

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(Globalpost/GlobalPost)

By Giancarlo Navach and Stephen Jewkes

MILAN (Reuters) - A second profit warning in less than 5 months wiped over a quarter from the share price of Italy's Saipem <SPMI.MI> on Monday, leaving Europe's biggest oil industry group worth half what it was at the start of the year.

Just weeks after a strategic review claiming better times lay ahead, Saipem said after the market closed on Friday it expected a net loss of 300 million to 350 million euros ($467 million) this year because of problems on contracts in Algeria, Mexico and Canada.

In late January, a new management team under CEO Umberto Vergine slashed 2013 net profit forecasts for Saipem, 43 percent owned by oil and gas major Eni <ENI.MI>, to 450 million euros, blaming lower margins on new orders.

"The situation is out of control. A company like Saipem can't issue two profit warnings in six months after telling us a month ago all is well," one shareholder said on condition of anonymity.

In an operational review in April that followed the first profit warning, Saipem said it was very well positioned to capture market opportunities and deliver on margin recovery.

"We're livid at the way everything has been handled - the communication policy, the whole modus operandi, though at these prices we do not intend to sell," a fund manager whose firm owns Saipem shares said, asking not to be named.

Saipem, once seen as a reliable and safe investment for its track record in beating its targets, still expects a strong recovery in profits in 2014 and thereafter.

At 1315 GMT, Saipem shares were down 27.8 percent at 14.53 euros, their lowest intraday low since April 2009. The problems affecting Saipem have raised the possibility that Eni, whose shares were down 2.4 percent, could sell its stake in the debt-laden unit.

Market regulator Consob, which is investigating circumstances behind Saipem's first profit warning in January, said it had banned short selling on Saipem shares for two days.

ALGERIA CLOUDS

Increasingly strained relations with Algerian energy giant Sonatrach will cost Saipem up to 350 million euros at an operating level due to its inability to recover certain costs regarding three projects close to completion, Saipem said.

It added Sonatrach was seeking damages for delays but did not specify the amount.

Saipem is at the center of corruption probes in Italy and in Algeria relating to large contracts that Saipem had entered with Sonatrach, a long-standing business partner.

Vergine, a former manager at Eni, took over as Saipem CEO after his predecessor, Pietro Franco Tali, was ousted when news of the Algeria probe broke in December.

Saipem said it was committed to re-engage with Sonatrach but analysts have expressed concern about possible repercussions of the probe on Saipem's business in Algeria and possible fines.

Algeria is Italy's second-biggest gas supplier and Eni has long-term gas contracts with Sonatrach.

In its statement on Friday, Saipem said two problem contracts in Mexico and Canada would cost it 260 million euros, adding there were also some problems at its E&C Offshore business.

"There is no investment case," Credit Suisse said in a note to clients after slashing its share price target to 16 euros from 22 euros.

"We believe Saipem will be uninvestible until major unknowns are clarified ... We expect the shares will remain dead money and will underperform the sector."

(Additional Reporting by Lisa Jucca; Editing by Ruth Pitchford)

http://www.globalpost.com/dispatch/news/thomson-reuters/130617/saipem-shares-plunge-after-new-profit-warning