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; request a free guide on NISAs from Hargreaves Lansdown

Life and Style
Customers can get their caffeine fix on the move
food + drink
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
Mosul dam was retaken with the help of the US
voicesRobert Fisk: Barack Obama is following the jihadists’ script
PROMOTED VIDEO
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Loaded weapon: drugs have surprise side effects for Scarlett Johansson in Luc Besson’s ‘Lucy’
filmReview: Lucy, Luc Besson's complex thriller
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
News
peoplePamela Anderson rejects ice bucket challenge because of ALS experiments on animals
Arts and Entertainment
tvExecutive says content is not 'without any purpose'
News
A cleaner prepares the red carpet for the opening night during the 59th International Cannes Film Festival May 17, 2006 in Cannes, France.
newsPowerful vacuum cleaners to be banned under EU regulations
News
newsChester Zoo have revealed their newest members
Sport
sportLeague Managers' Association had described Malky Mackay texts as 'friendly banter'
Life and Style
fashion
Arts and Entertainment
tvSpielberg involved in bringing his 2002 film to the small screen
News
peopleCareer spanned 70 years, including work with Holocaust survivors
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

    Generalist HR Administrator, Tunbridge Wells, Kent - £28,000.

    £25000 - £28000 per annum: Ashdown Group: Generalist HR Administrator - Tunbri...

    Application Support - Enterprise Java, SQL, Oracle, SQL Server

    £45000 - £55000 per annum: Harrington Starr: A well-established financial soft...

    Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

    Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

    Service Desk Analyst (Graduate, Helpdesk, Desktop, Surrey)

    Negotiable: Harrington Starr: Service Desk Analyst (Graduate, Helpdesk, Deskto...

    Day In a Page

    Air strikes? Talk of God? Obama is following the jihadists’ script

    Air strikes? Talk of God? Obama is following the jihadists’ script

    The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
    Ebola outbreak: Billy Graham’s son declares righteous war on the virus

    Billy Graham’s son declares righteous war on Ebola

    A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
    Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

    Not even Jeremy Clarkson is bigger than the BBC, says TV boss

    Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
    Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

    Nick Clegg the movie

    Channel 4 to air Coalition drama showing Lib Dem leader's rise
    Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

    Philip Larkin: What will survive of him?

    Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

    Waxing lyrical

    Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
    Texas forensic astronomer finally pinpoints the exact birth of impressionism

    Revealed (to the minute)

    The precise time when impressionism was born
    From slow-roasted to sugar-cured: how to make the most of the British tomato season

    Make the most of British tomatoes

    The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
    10 best men's skincare products

    Face it: 10 best men's skincare products

    Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
    Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

    Mackay, Moody and another grim day for English football

    The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
    La Liga analysis: Will Barcelona's hopes go out of the window?

    Will Barcelona's hopes go out of the window?

    Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape