Derek Pain: Servoca may finally be ready to reward Morton's persistence

Nearly three years ago I applauded the resolution of serial investor Bob Morton. He has a string of small-cap interests, often adopting a hands-on approach. One of his holdings, a company then called Multi Group, had been particularly troublesome but he refused to walk away. Instead, he reshaped the group and set it, he then believed, on the path to success and riches. Just to underline the revamp, he adopted the obligatory new name – he settled on Servoca. For once his initiative did not succeed. So, displaying even more determination, he orchestrated another revamp. And this time the Morton magic seems to have worked.

Mind you, Servoca faces difficult trading conditions. Much of its activity embraces areas vulnerable to coalition spending cuts. Indeed, it has already experienced some curbs. But Andy Church, the chief executive who arrived in the second reorganisation in November 2008, remains relatively upbeat. He has not in recent weeks suffered from any more belt-tightening. Still, he believes the uncertainty generated by the emergency Budget and threatened Whitehall cost-cutting manoeuvres could affect trading.

Consequently, the stockbroker FinnCap has reduced this year's profits forecast from £2.7m to £2m. At the half-way stage, profits (helped by the company's own cost reductions) were up 10.5 per cent to £950,000. Last year, with Servoca enjoying the first fruits of Mr Church's involvement, it produced £2.2m. Analyst David Buxton is shooting for £2.2m next year.

It could be argued that Servoca is in the wrong businesses at the wrong time. It supplies medical staff and teachers and runs a security operation and a police support service. In certain areas, Mr Church believes Servoca could actually benefit from the squeeze on public-sector spending. For example, it could score if police forces are tempted to use more civilians for back-office work, thereby freeing more highly-paid police to combat criminality if their numbers are reduced by redundancies.

Mr Morton is a doyen of the small-cap brigade. He has a wide spread of interests. His stable includes Armour, the consumer electronics group, Tenon, an accountancy practice, and WFCA, an advertising and marketing business that, if rumours are correct, is planning a significant deal. His family investment in Servoca amounts to about 30 per cent. It has, so far, been an unrewarding excursion. At one time, Multi's shares were in the stratosphere. The former tool hire company then decided to venture into medical recruitment. A deluge of difficulties followed and the shares, once above 800p, slumped to less than 50p.

One headache was created by a company called Global Medics, for which Multi paid the equivalent of £13.7m. It was later unloaded for a mere £520,000. For the first Morton reorganisation (a reverse takeover, plus new management and a cash-raising exercise), the shares were valued at 25p. Despite further expansion through a handful of acquisitions, Servoca lost £7.2m. Mr Church was then drafted in and more capital raised at 8p a share.

Servoca may have swung into profits but its shares are still a long way from recapturing anything approaching past glories. As I write, they stand at 9.5p, not far from their all-time low. Capitalisation is about £12m. And FinnCap, not surprisingly, is not looking for any improvement. Mr Buxton says: "The valuation remains low but, given uncertainties, it is difficult to see out performance in the near term."

Mr Church was associated with one of Mr Morton's earlier successes. He was a director of Lorien, an online recruitment company. Many of Mr Morton's Lorien shares (he had nearly 50 per cent) were acquired at 40p. The company subsequently fell to a 100p a share takeover offer.

Lorien, which once held merger talks with Servoca, was earmarked to join the No Pain, No Gain portfolio. But I missed the boat when the shares surged to 70p. Despite its two revamps, Servoca must be the worst performer in the Morton empire. But I believe its day will come.

Some other Morton shares are feeling the pinch. The stock market is going through a difficult phase. They occur every so often. Buy-and-hold investors should not despair. During my 50-plus years in the City I have witnessed many such setbacks. They often represent ideal buying opportunities.

yourmoney@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Software Development Manager

    £40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee