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

Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
Sport
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
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: Telesales / Marketing Executive - B2B - OTE £25,000

    £17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

    SThree: Trainee Recruitment Consultant

    £18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Recruitment Genius: Business Control Manager

    £36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

    Day In a Page

    HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

    Scientists hail daily pill that protects against HIV infection

    Breakthrough in battle against global scourge – but will the NHS pay for it?
    How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

    Time to play God

    Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
    MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

    MacGyver returns, but with a difference

    Handyman hero of classic 1980s TV series to be recast as a woman
    Tunnel renaissance: Why cities are hiding roads down in the ground

    Tunnel renaissance

    Why cities are hiding roads underground
    'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

    Boys to men

    The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
    Crufts 2015: Should foreign dogs be allowed to compete?

    Crufts 2015

    Should foreign dogs be allowed to compete?
    10 best projectors

    How to make your home cinema more cinematic: 10 best projectors

    Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
    Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

    Manchester City vs Barcelona player ratings

    Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
    Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

    Monaco: the making of Wenger

    Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
    Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

    Chris Gayle: The West Indies' enigma

    Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
    In Ukraine a dark world of hybrid warfare and murky loyalties prevails

    In Ukraine a dark world of hybrid warfare

    This war in the shadows has been going on since the fall of Mr Yanukovych
    'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

    Homage or plagiarism?

    'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
    Broadchurch ends as damp squib not even David Tennant can revive

    A damp squib not even David Tennant can revive

    Broadchurch, Series 2 finale, review
    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

    Inside the mansion of Germany's 'Bishop of Bling'

    A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower