No Pain, No Gain: Music in cars and shops is the sound of profits
Saturday 06 November 2004
Armour Group is one of the many smallcaps that have been around the block a few times. In the past 40 years or so, it has dabbled in a variety of activities, including soft drinks and confectionery. Until recently it had enjoyed limited success. But it is now on a veritable roll - thanks to yet another interest.
These days it is an impressive player in the world of in-car communication and entertainment. It is a lucrative business, judging by the results Armour produced last week. Sales in the year to end August rose 94 per cent to £31.1m, pre-tax profits jumped 105 per cent to £2.9m, and earnings per share 74 per cent to 4.7p. The dividend increase was less spectacular: a mere 29 per cent to 0.45p. Still, a little caution at this stage in the group's development is no doubt justified.
What about the current year? Trading appears to be shaping up well but the high notes hit last year are unlikely to be repeated. Sales are expected to reach a commendable £35m with profits emerging at, say, £3.4m.
It is all a far cry from the days when Armour was an obscure investment vehicle. Subsequently it was transformed into a mini-conglomerate. Among the companies it alighted on was Tizer, then a quoted and struggling soft drinks enterprise. But Armour did not have the resources to recapture the sparkle that Tizer once enjoyed. So it was quietly ditched. The brand is now owned by AG Barr which has for years enjoyed the distinction of being Britain's only quoted "pure" softdrinks operation. However, in the New Year it will have company - in the shape of Britvic, which is due to be floated by its owners, three former brewers.
In its search for salvation, Armour at one time or another owned the Bond boiled sweets business, as well as companies involved in providing air-fresheners, mainly for cars. But a move into in-car hi-fi eventually transformed the then heavily indebted group. It wanted, for a time, to sell the in-car operation to its management, but shareholder resistance scuppered the plan. Later, serial investor Bob Morton, already nursing a small stake, saw his chance to assume control. Not only did he retain the entertainment business, but he made it Armour's core activity, overseeing some intriguing acquisitions.
Mr Morton, chairman of six quoted companies and significant shareholder in 15, moved in as chairman and Armour swung from the slow to the fast lane. Its shares, bumping along at about 15p when he arrived, are now about 73p, after hitting 90p earlier this year. Some observers think the best is over and from now on Armour's progress will be much more sedate. It is true that current-year estimates suggest a more pedestrian display. But is there too much caution around? Even if forecasts for this year are correct, there is little doubt the group is on a roll.
It is not just with in-car equipment that it is hitting the right note. Similar in-home sound systems have been developed. Its home operations should make a reasonable profit this year. Housebuilders are studying its hi-fi installations and I believe Armour feels that two builders are near to signing contracts to include its systems in some of their up-market developments. Installing sound systems in shops, malls and pubs are other developments high on chief executive George Dexter's agenda.
Last year Armour had £2.5m in the bank. Expansion since then has left it with an overdraft. Its last deal was the £1.75m acquisition of a company fitting home installations. I agree Armour is set for a quieter existence; but it will continue to make heady progress, with its in-car entertainment side making the right noises and the expansion into homes, shops and pubs providing more than adequate back-up. The ground has been prepared for what could emerge as a substantial company, which could attract a takeover bid. The shares are now regarded, in some quarters, as a sell. But if I were a shareholder, I would certainly stay in tune with the Morton music. And I would not attempt to dissuade any investors from buying - providing they have the courage, in this uncertain world, to take a relatively long-term view of, say, a few years.
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