Derek Pain: Big in small caps, the investor who hasn't lost the faith
No Pain, No Gain
Saturday 11 February 2012
Bob Morton, an entrepreneurial investor, is not at all disillusioned by the ragged retreat that small caps have suffered in the past few years. Blue chips and leading supporting shares enjoyed something of a romp in the opening weeks of 2012, an advance that, according to tradition, indicates a favourable performance in the months ahead. But, once again, many little 'uns missed the party. Like most who follow shares outside the top echelons, Mr Morton, a veteran who has made many a killing on the stock market undercard, has been forced to endure some sharp reverses in recent times as the City has continued to disdainfully ignore what was once a highly active and often rewarding part of the investment scene.
Of course, it is still possible to alight on winning tiddlers. And I suspect Mr Morton, regarded in many quarters as "the small caps king", has quite a few hits in his portfolio, which extends to some 40 investments, around 15 of them significant stakes – mostly declarable interests. His boardroom involvements may be less numerous these days but he still takes an active interest in the running of his portfolio and remains chairman of some member companies.
There is no universal definition of small caps. Some would say up to £100m capitalisation; other would go for a £50m ceiling. A lower tier, with perhaps less than £10m, which I would still regard as small cap, is sometimes described as microcap. Some of the Morton interests are capitalised at less than £10m – one just tops £1m – and I think most of the investments where he is publicly associated are capitalised below £50m.
An accountant who became captivated with the stock market hurly burly, Mr Morton, 70, believes the bombed-out undercard – small and micro – is offering "quite fantastic value". And he reckons past glory days, when the sector made much of the running, will be recaptured. He does not see any sudden upturn in sentiment. Much more likely is a growing investor realisation of the intrinsic value that lurks. "But it could be a long haul" he observes.
He is still investing. One example is Servoca, an outsourcing and recruitment enterprise that is struggling to contend with government cuts. The group, where he is chairman, has reported pre-tax profits of £1.4m, down from £1.5m. Shortly after the figures appeared, Morton interests added 1.5 million shares, lifting his related holdings to just below 60 per cent.
Yet Servoca, once known as Multi Group, must represent one of Mr Morton's most unrewarding exercises. He has led several revamps and must be satisfied that the business, under chief executive Andy Church, is now heading in the right direction. It was once a tool hire group that ventured disastrously into medical recruitment. At one time it enjoyed a stratospheric share valuation. These days the price is around 5p, offering a£6.2m capitalisation.
Mr Morton is a long-term, exceedingly patient investor. For example Armour, now a consumer electronics group but in a previous incarnation a soft drinks maker, attracted his attention around the turn of the century. The shares have not had an enjoyable ride; they are now around 8p, providing a £7.4m capitalisation, against 60p five years ago. Still, its fortunes – and the shares – could be transformed if stories I hear are true. According to the rumour mill it could become the UK and Scandinavian agent for a new US-inspired 3D venture.
Other Morton interests include property information group PSG Solutions, where he has 40 per cent, and Vislink, a communications group, around 17 per cent. PSG shares illustrate that small cap winners still exist. They have climbed from 20p to top 100p in the past year. A government contract win prompted the surge. Vislink, too, at 28p, is around a year's high.
Past successes include Lorien, an on-line recruitment group which was sold for 100p a share against the 40p he paid for most of his 50 per cent-plus stake. One interest that is well into any microcap grading is Vitesse Media, a financial information publisher. The shares are 4p, pricing the group at only £1.1m.
Mr Morton has no intention of retiring. He may have cut down directorships but "I enjoy business; it's my life", he says.
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