Adding Armour to the value portfolio

On January 6th I put 4% of the UKVI ‘aggressive’ fund into Armour Group at 7.46 pence.  The 4% came from existing cash from the sale of Victoria.  At the time Armour came top of the UKVI valuation table, with a ‘returns yield’ of about 40% and according to their web site “Armour Group is the UK’s leading consumer electronics group within the home and in-car communication and entertainment markets”.

The company trades on the AIM index, which I’m not so keen on as they have live outside of the tax haven of an ISA wrapper, so it’s not for those investors who only have money in an ISA, but I have a little bit outside the wrapper so that’s okay.

The key data are as follows:

ROE10 = 9.2%, ROE5 = 7.5%, ROE3 = 5%, P/B = 0.18, market cap = 5.3M

As is typical of many value investments, the trend in earnings is downward, but that’s fine as earnings mean reversion is one of the main causes of share mispricing.  Typically companies rebound faster and better than expected.

This leaves my cash position at about 14% which is spot on the current cash target.  The cash target for the ‘aggressive’ portfolio being half that used in the ‘defensive’ portfolio described in detail here.

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

5 thoughts on “Adding Armour to the value portfolio”

  1. I was going to say something about that weird cube radio thing but couldn't think of anything to say other than that it's weird. I've just worked how to get music off of an MP3 player onto a radio, so I'm happy fiddling with that for now.And the fact that Armour is your worst performer is probably good news for me as it means I got it cheaper! However, great minds think alike etc.

  2. The radio is fab, but as far as I can tell barely marketed and perhaps overpriced (at £90). At major consideration for us is that the blue flowery one went very well with our new kitchen decor. But the sound it produces (and volume) is first class, the choice of channels almost infinite, and the gimmick (that it has not controls and works Nintendo Wii-like by tilting it and twisting it) is a conversation starter! Armours a weird company too in my opinion, but another one I dangerously predisposed to like 🙂

  3. The radio appeared in FT's "How to Spend It" last weekend and got a rave review…hope it translates to the share price! Out of interest, how did you derive a 40% 'returns yield'?

  4. Hi V4Value. I hope it translates into sales and profit and we'll all be happy. As for the 'returns yield', to be honest I have no idea. Life moves pretty fast and I've moved on from the approach I was using just a few short months ago. It was probably something to do with the expected upside before reaching a target price, based on P/B and the historic return on equity over many years, i.e. ROE has been around 6% or something, so the company 'should' trade at 0.6 P/B. Something like that.I wouldn't touch Armour now as I'm starting to add 'good' companies that have grown consistently over the long term and that can be bought at a fair price. I have been through the Buffett wash it seems.

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