Wednesday, 11 February 2009

Morse – And then there were four

(By Anthony Miller). Or seven-and-a-bit, depending how you count them. That is, the number of discrete businesses remaining in the fold assuming the sale of Morse’s UK & Jersey investment management consultancy business, CSTIM, to US consultancy Navigant, completes as planned (see Morse closer to consulting exit). The ‘bit’, by the way, is the one remaining contract at South Tyneside & Gateshead in Morse’s defunct Education business, now being separately managed.

In reporting the company’s interim results (see here), executive chairman Kevin Loosemore also announced that FD Mike Phillips is to immediately step up to the CEO role, and that Loosemore will go non-exec when a new FD is found. Phillips - who we really rate - was FD at Microgen at the time the two companies were fighting to buy SAP consultancy Diagonal back in 2004. At the time, Morse had revenues of some £350m and Diagonal about £56m. Morse won, though this turned out to be rather a Pyrrhic victory. Diagonal’s revenues dropped over 20% yoy to just under £14m in 1H09 (to 31st Dec. ’08) and remains saddled with a number of “problem projects”. When you think of the premium HCL paid to buy UK SAP consultancy Axon, you wonder where Diagonal could have been in an alternative universe.

Just for the record, only Morse’s UK Infrastructure Services & Technology division remains truly profitable (i.e. including restructuring charges etc), at a 2.2% margin; the lion’s share of revenues (~70%) comes from product sales. However, this is better than Computacenter’s UK business which reported a 1.3% margin at its first half in June.

I suspect that the fate of much of the rest of Morse’s businesses will be as for CSTIM, i.e. sold at bargain-basement prices with the only other option to close them down. Messers Phillips and Loosemore (and the new FD) have a hard grind ahead, but there will be buyers out there ... at ‘realistic’ prices.

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