Morson looking to rebound from defence review

1st Feb 2011 14:10

Outsourcing services and technical personnel provider Morson said trading in the latter part of last year remained challenging but the group's results are still expected to be in line with expectations. "Whilst trading in civil aerospace, nuclear, power and rail has remained relatively stable, our activity in the defence sector has been impacted by the implications of the UK Government's Strategic Defence and Security Review (SDSR)," the company said.In November, BAE Systems, one of Morson's key customers, put 1,300 of its employees at risk of redundancy across five sites as well as at RAF Cottesmore and RAF Kinloss, following the cancellation of the Nimrod MR4 programme and the early withdrawal from service of the Harrier fleet. Not surprisingly, this has had a knock-on effect for Morson, which provides contractors to BAE Systems. "Over the last few weeks we have seen reductions at Woodford, Cottesmore and Warton sites. There are also further less significant reductions through the first quarter of 2011 at these sites as programme levels are wound down and internal resource reallocated," the company revealed.The company is seeking to redeploy staff and is gratified to see that its work on the helicopter programmes have been largely unaffected by the SDSR. There are also good civil aviation prospects for the coming year, the company believes.Nevertheless, Peel Hunt, while commending Morson's management for bringing in 2010 profits in line with market expectations, has downgraded its profit before tax forecasts for 2011 and 2012 by 14% to £7.8m and 16% to £8.9m respectively. "Whilst this is a significant impact on [2011] activity we note that there has been no actual loss of contract and can still see scope for activity to improve again as the year progresses. Until we gain more clarity on that front, however, we believe it is prudent to take a cautious view. We are reducing our price target in line with the downgrades and move our recommendation to Hold, as we think the business has solid fundamentals. The 5% yield is also attractive," Peel Hunt said.