London-headquartered ArmorGroup, which provides protective security and training as well as mine clearance, has clinched a $9.5m (£4.8m) extension to its UK Government contract in Afghanistan.

The initial deal, worth $30m a year, has been increased to $38.5m, with ArmorGroup also awarded a $1m contract to provide police mentors and advisers in Helmand Province for at least eight months.

Under the terms of the contract, the group provides static guard services, where former Gurkha soldiers and Afghan guards protect a number of sites including the British Embassy, mobile security services, where Government workers are protected as they move around Afghanistan, and police mentoring services to the Afghan national police.

News of the extension follows the award of a long-term US Embassy guard services contract in Afghanistan to the North American subsidiary, worth up to $189m over five years, as well as a raft of other deals in Afghanistan over recent months as the market burgeons in line with Western efforts to reconstruct the country.

Results from ArmorGroup for calendar year 2006 showed strong 17% sales growth to $273.5m and doubled operating cash flow of $30.7m, although pre-tax profits dropped from $12.1m to $9.6m with good underlying profits growth from the protective security arm offset by underutilisation of its Iraq training facility.

Encouragingly, however, ‘non-Iraq’ revenues surged 46% north to $140m (£71m), reflecting ongoing geographic diversification – ArmorGroup operates as far afield as the Middle East, Africa, Asia, and North and South America. The total dividend was held at 275p. Picking up lucrative wins in growing markets and trading on only 11 times last year’s pre-tax profits, we feel a re-rating is due. Speculative buy.

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