Monitise became a separately listed company in June. It had an operating loss of £7.3m, which was reported in Morse’s results as discontinued operations. The sale raised £20m, leaving Morse with £15.3m on the balance sheet.
Operating profit from Morse's continuing operations for the year to 30 June rose from £11m to £12.5m. Revenue fell £256.5m from £296.5m, below analysts’ forecasts of £273m. This was largely as a result of weakness in its infrastructure consulting business, where Morse is shifting away from supporting third party software and hardware, leading to some short-term pain.
The group will pay a final dividend of 2.8p per share, up from 2.7p per share last year.
In the management consultancy division, the group attributes its success to ‘better integration of our applications and infrastructure offerings alongside our proven management consulting services’. Back in the real world, this means that the group has developed a range of new services for hedge fund clients, helping them trade more complex instruments. It has also seen good growth in its French business. Revenue was up £17.8m from £14.1m.
The applications consulting business was weaker with sales down to £74.9m from £84.9m. The group warned about difficulties in this area in the interim results. It has restructured the division, including some ‘headcount re-balancing’ (does this mean redundancies?). It is now focusing more on specialist consultancy and has seen stronger progress in the second half of the year.
However, it was the infrastructure consulting business that saw the lion’s share of the restructuring. It is now concentrating on ‘key clients, vertical markets and promising propositions’. In layman’s terms, this means it is now focusing on higher margin service business rather than lower margin third party software and hardware support.
Revenue fell 31% to £97.3m over the period, but pre-tax profits improved to £5.6m from £2.6m. The group said it had expected a fall in revenue, but this was sharper than expected.
The group has some lofty goals for the next year, including: 'developing a culture and values framework that, together with a structured people development programme, creates an inspiring environment for all stakeholders'.
It also plans to strengthen its existing vertical sector capabilities and will, over time, move to a full client-driven vertical sector model. Perhaps this means something in the world of management consultants, but the trouble with spouting this sort of stuff is that you start to believe you are actually talking sense.
Brokers Investec and Dresdner Kleinwort managed to see through this garbled management-speak to issue buy ratings on the stock. Investec said sales were below its estimates but operating profit was ahead of forecasts. It has a target price of 108p. Dresdner Kleinwort has a target price of 122p, saying underlying performance was strong after exiting the cash consumptive Monitise business.
Investors would be forgiven for instinctively mistrusting a company that fills its results statement full of obfuscating management clichés. Unfortunately it also reinforces the prejudices of many people about what is wrong with the management consultancy industry and calls into question the service they provide.
Setting that aside, the shares were down 1p to 95p on the results, putting the company on a p/e of 14.1x. They peaked at 105p in July and have been as low as 70p this year. Investors may want to wait for a trough before buying, but there is almost certainly some value in this company - if only its management could articulate its strategy in language investors can understand.
