Tuesday, 8 July 2008

Morse restructures...for sale?

Morse has announced that it has seen "some deterioration in short term services in Q4 as clients have reduced discretionary spend". This, together with "continued project issues and weaker performance in Spain" means lower EBIT margins in H2 which will lead to "full year EBIT being broadly similar to 2007 (£12.2m".

Morse has also announced that Kevin Alcock is stepping down as CEO and newly appointed Chairman, Kevin Loosemore, has stepped up to Exec Chairman. With that comes a "simplified Group structure" where Morse will operate as five business units:

- Investment Management Consulting
- Business Application Services
- Infrastructure Services and Technology - UK
- Infrastructure Services and Technology - Spain
- Infrastructure Services and Technology - Ireland

Morse is one of those companies which has not only joined Holway's 50% Club but the 33% Club too. It's share price is now a third of its 2007 high of 145p valuing them at £65m compared with their c£250m revenue line.

Making the transition from a product resale company to a software & services company is a very hard move to make. Goodness - it took IBM over a decade to achieve. Computacenter is still suffering in its move. Morse has the added problem of being quite small in comparison. It has got involved in a whole range - I might have said 'mish mash' - of different acquisitions of different businesses in different geographies. Readers should remember that the management also took their eye off the ball with Monitise - now separately listed.

I applaud Loosemore's move. He's identified the main business/niche areas and geographies and put them into separate units. What today's announcement doesn't spell out is "What next?". But it wouldn't take a clairvoyant to work out that these moves are being made prior to selling these units "when the time and price is right". Morse is a clear example of where the "Sum of the parts is worth more than the whole".

The market will probably punish Morse in the short term. But Loosemore has taken the right, bold decisions which I feel sure will pay off for shareholders in the medium term.

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