Sunday, 13 September 2009

Morse FY09 update

(By Anthony Miller – Sunday 13th September 2009 4:45pm). I must admit I had taken my eye off Morse’s stock these past few weeks and nearly fell off my chair when I saw the shares had closed the week at 35p. No wonder the board didn’t take the 25p offer, and how prescient of management to buy the shares at 7.5p (see Morse - Walking the Walk).

I had a chat on Friday afternoon with Morse CEO, Mike Phillips, about the results (see Morse – will new year bring new hope?) and I think the answer to that particular question is ‘Yes’! It seems the intensive therapy that Phillips and chairman Kevin Loosemoore lavished on the company over the past 15 months is paying off. Adjusted margins at the all important UK IST (product resale and associated services) business reached 6.3% (1H09: 5.3%), and major restructuring is now complete. Margins in the Business Application Services division are also up, from 4.4% in first-half, to 6.0%. It seems all that stands in the way of Phillips moving adjusted margins from today’s 2% to his 5% target is a recovery in Spain and Ireland (which barely broke even in aggregate) – assuming he keeps his eye firmly on the ball in the UK.

A year ago we thought that Morse’s then 7.2% margin target (including the now disposed CSTIM business) would remain a distant dream (see Morse still aims for 7.2% margin). Maybe 5% doesn’t look that distant any more.

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