ArmorGroup plummets on profit warning

Earlier this year, it looked as if security contractor ArmorGroup International was on the mend after suffering a squeeze on margins from increased competition – particularly in Iraq. The latest statement from the group suggests otherwise, however. Profits will drop below last year’s $10.6 million (£5.1 million) and the chief executive, David Seaton, has gone. Given the upbeat tenor of the previous statement in September, something has clearly gone wrong at a management level.

The Iraq market is contracting, competition has intensified and the US Government, ArmorGroup’s dominant customer, is reviewing its use of private security firms following the shooting of 17 civilians in September by US firm Blackwater. The big contract to guard the US embassy in Kabul is loss making, though it is slated to turn a profit early next year. To make matters worse, a planned acquisition looks like falling through, leaving the company with a £1 million advisory bill. Meanwhile, the fall in the dollar has cost the company close on £500,000.

Predictably, the shares plummeted. At the current 27p (which compares with a recommendation price here in March last year of 110p), ArmorGroup is capitalised at just £14.5 million. At the last count it had debt of less than £4 million. Not surprisingly, it is retrenching in Iraq. In September, it said there were a number of promising contracts coming through from other theatres. The share price is not pricing in an early recovery, but if you have held so far it is probably worth continuing to do so.