No Pain, No Gain: Armour is fighting back in a tough retail environment

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The Independent Online

Are we due for yet another Santa Claus rally? In most years in the run-up to Christmas and the New Year the stock market enjoys an exuberant run. I believe it will do so once again, despite the hesitancy created by the multitude of problems confronting the eurozone.

When I was The Independent's stock market reporter the upsurge was an accepted event. Many investors reaped handsome presents by banking on a sharp advance over the festive season. Indeed I cannot recall a single occasion when the boom did not materialise.

The Investors Chronicle has concluded that there has been a festive rally in 24 of the past 28 years. So it looks as though the odds must be heavily stacked in favour of yet another rewarding round.

The flies in the ointment are the fall-out from the euroland crisis and possible Far Eastern tension. EU officials happily waffle on that the Irish and Greek disasters will not be repeated, but further bailouts appear highly likely. The pre-Christmas sight of another looming bankruptcy could wipe out any stock market cheer.

Why is Christmas so often a merry hunting time for investors? One factor is that once some of the City's top guns depart for their festive break their deputies are more inclined to take the path of least resistance and let prices run. There is also the impact of year-end institutional window-dressing as fund managers strive to maximise their performance bonuses.

But by far the most important influence is the continuous fall in volume as the holiday run-down develops. It is not unusual for fund managers, as well as dealers and traders, to shut up shop as Christmas approaches. Their no-show more or less leaves the field clear for small, private investors. And with individual investors likely to be buyers (inspired by Christmas and New Year share tips) they have a disproportionate influence and, in very low volume, succeed in pushing shares higher.

As investors hope for another festive killing, I wonder about the Christmas atmosphere prevailing in some of the nation's boardrooms, particularly small caps. It is likely to be rather subdued. Last week I heard George Dexter, chief executive of the Armour Group, discuss his problems: "This is not a great time to be running a quoted small cap," he said, citing uncertainties facing his retail customers.

At the pre-tax level, Armour produced profits of £947,000 against £1.1m. No dividend is being paid. The shares, a few years ago around 60p, are now 9p, giving a £6.2m capitalisation.

I have sympathy with Armour and similar companies. Uncertainty reigns in many markets. Armour, which once owned Tizer, the famed soft drink, is now engaged in consumer electronics such as in-car communications and home entertainment. It has also spread into such areas as TV stands and office furniture, and is looking at adding lighting to its activities. Clearly its car and home electrical products – hardly must-have offerings in these depressed times – could be major casualties of next year's widely forecast retail recession. Indeed Mr Dexter fears 2011 could be exceptionally traumatic for many retailers and their suppliers.

But little Armour is fighting back. It has become Europe's biggest TV stand group, and has even established a factory in China to make them. Its determination to keep rolling forward is reflected in its search for new products.

And it nurses high hopes for its latest creation – an internet radio capable of linking to 10,000 stations and podcasts. The Q2 internet radio does not require displays, dials or buttons. It is made in China. Armour is selling its newest product, retail price is £90, through the internet and selected retailers. So far it has sold 500 sets, and when I met Mr Dexter it had only a few left, although 4,000 were then on the high seas.

Armour is one of the companies in the stable of the serial small cap investor Bob Morton, who is chairman. He echoes Mr Dexter's caution. "The economic outlook remains uncertain and challenging in the near term in our core UK markets," he says. And with Armour finding the future difficult to predict, the company's stockbroker, FinnCap, has slashed its current year's adjusted profits forecast from £1.1m to a mere £200,000.

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