Hard to find anything positive to say about Morson’s (MRN) 2011 figures. Operating profits down for fourth year in a row, at £7.1m, operating margins down yet again, to a wafer thin 1.6%, and net debt up more than 40 %, to £33.3m. Worse still, the board, which has already axed the final 4p dividend, now warns that there can be no guarantee that any dividend will be paid in respect of the current financial year.

About the only positive thing that can be said about MRN is that it is continuing to increase its market share. Contractor numbers are up 700 at 10,900 and revenues have topped £500m for the first time. But it is paying a high price for its bid for market share.

Since 2006, when the company was floated, revenues have risen 55%, but operating profits are down more than a quarter. Operating margins have fallen every year, and are now roughly half what they were in 2006. Meanwhile, net debt has risen from £10.9m in 2009 to £33.3m at the end of 2011, reflecting higher working capital requirements and the need to finance a long overdue expansion of the group’s international business.

There are all sorts of ratios that can make MRN shares look cheap at current levels. It is trading on less than four times earnings, and a discount of around a third to its net asset value after goodwill has been stripped out. Meanwhile. its balance sheet still looks surprisingly strong with interest cover of 8.7 times.

MRN’s decision to axe its dividend is in marked contrast to Matchtech (MTEC), a smaller rival, which has been finding the going equally tough with cutbacks in public sector spending and the general recession severely squeezing its recruitment margins.

MTEC has held its dividend and its shares are yielding 7% and trade on 11 times earnings compared with MRN’s 3.4 times. Its dividend cover of 1.3 times compares with MRN’s 6.1 times based on the 2p divi paid last year. MTEC generates more profits than MRN, even though the latter’s revenues are some two thirds bigger, and it has nearly three times as many staff. No surprise then that MTEC’s market capitalisation of £45.6m is almost three times MRN’s.

Despite the markedly differing share ratings both companies have a lot in common.…

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