No Pain, No Gain: Undervalued Armour has the quality for battle

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The Independent Online

Many companies undergo dramatic changes. They have inhabited a variety of industries before assuming their present shape. But I suspect in the past few decades few have experienced such a meandering journey as little Armour, capitalised at a mere £25m.

Today it is known for in-car communication and entertainment and home entertainment equipment. Yet, when I first encountered the company – then called Armour Trust – it was a high-profile producer of soft drinks, embracing the famed Tizer brand. Indeed one of its early deals was an audacious bid for Tizer, then a quoted company. It has also dabbled, not always successfully, in such diverse fields as confectionery, pot pourri, toiletries, air fresheners and a variety of car accessories, including Bluecol antifreeze.

It emerged, I think, from an investment trust in the late 1960s when the City was awash with serial entrepreneurs led by Jim Slater and Lord Hanson. A lesser light, Andrew Balcombe, was the major force at Armour. He ran the company for approaching 30 years, and although it may have lost its way towards the end of his reign, it certainly enjoyed a degree of fame and fortune.

I have discussed the transformation of Armour before. I return to the company today because I believe the shares are worth buying. They bump along at around 37p, compared with the 73p when I discussed the group three years ago. Mind you, I admit I then thought they were an interesting long-term bet.

The stock market's judgement is not infallible. Share prices can be hopelessly wrong. Stagecoach, the bus and train group, is a prime example. Five years ago the shares crashed to around 10p as an array of wild and wonderful stories swirled around about an imminent catastrophe. The bears were soon desperately running for cover. A few weeks ago, after cash buy-backs (worth 81p a share), the price hit 278p.

Armour, I believe, is merely undervalued. The stock market seems perplexed by its latest results. It produced a pre-tax figure of £289,000 against a restated (and reduced) £2m in the previous year and almost £3m in the year before. What appears to have been overlooked is that the latest profit was struck after a special charge, a £2.7m disposal loss. So, in effect, the group achieved £3m. And the dividend was increased. What's more, the current year is going well. Although there is the obvious danger that any consumer slowdown could impact on a group selling high priced car and home accessories, chief executive George Dexter is confident Armour will enjoy a good run.

My guess is that profits should hit £3.6m – possibly stretching to £3.8m – putting the shares on a bargain-basement rating. It has a number of intriguing new developments to join its hi-fi, radio and headphone offerings, including a novelty that makes a clapped-out old banger sound like a high-powered sports car. An internet shop has been added to the 6,000 retailers who already stock the brands it owns, plus those it represents.

Armour is one of the companies in the stable of Bob Morton, a serial investor. Several of his companies have fallen to take-over bids in the past year or so. With Armour so undervalued I would not be surprised if it attracts a predator.

In recent months many smallcaps, often for no apparent reason, have come under pressure. I am growing increasingly concerned about Myhome International, the franchise group that was once the star of the No Pain, No Gain portfolio. As I write, the shares are 61p, down from a peak of 106p. Trading in them has been thin, but even so the lack of support is worrying, particularly as it has tossed shares around for takeovers. The two most recent placings were above the current price and that can only add to any nervousness.

I think Myhome still has much going for it. And I believe the fall has been overdone. But as the portfolio can be adjusted only once a week it needs some protection against sudden changes and I have decided to put a 50p sell price on the shares. I will be surprised if the decline continues but if it does the portfolio will enjoy some protection.

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