Stafford-based back-office optimisation software supply minnow EG Solutions (EGS:AIM) has been thrown a googly as chairman and chief executive John O'Connell walked out. This comes as a huge shock as he'd been in the job less than three months, having initially joined as a non-executive director in March. Perhaps unsurprisingly the confidence of investors has been shaken, swiping more than 15% off the share price to 76.5p.


Our sources tell us that friction had been building between O'Connell, foundering acting executive chairman Elizabeth Gooch and some of the company's institutional backers for a couple of weeks. I'm shocked since I shared a table with O'Connell just a few weeks ago at the UK Tech awards, and he spoke excitedly about the opportunity for EG during our chat.


But sometimes cultures clash and it's best to draw a speedy line under events and move on, perhaps even more so at a microcap business like EG. Gooch will step into the breach short-term to provide a stabilising force, a sensible move, but investors can expect a new CEO appointment in due course.

EG SOLUTIONS - Comparison Line Chart (Rebased to first)

It's a bit of shame really given that this announcement has completely overshadowed a very useful £750,000 three-year contract win with an unnamed 'major outsourcing partner' for EG's operational intelligence tool kit. Today's news has also undone the share price progress since EG unveiled its first contract win through a strategic partnership with software reseller Aspect, a business relationship that Gooch had been working on exclusively until recently, an arrangement that she'll return to down the line.


The rationale makes perfect sense. Aspect provides workforce optimisation solutions to over 3,000 clients in 50 countries, so at a stroke the pair's partnership lends EG the global scale it had previously found so hard to achieve. Some analysts believe Aspect could help EG double, even triple, its new business potential on which EG stands to earn a rough 80% slice of revenues. That agreement also saw Aspect take a 10% stake in EG and a spot on the board.


Sceptics may view this as yet another damaging bump in the road for EG which warned of a £1 million profits miss in February. But while new business has had a habit of moving to the right in the past, we'd expect the Aspect relationship to help smooth revenues in future.


EG may have to raise a bit more cash down the line to give it the £4 million or £5 million boost to working capital needed to leverage opportunities as they arrive. A new chief executive who truly sings from the same hymn sheet as Gooch and other shareholders could come as a timely reminder of the company's emerging growth potential.

Issue Date: 06 Dec 2013