Matthew Lynn writes about private security companies in the latest Spectator. His headline is "Men with Guns are the New Dotcoms." One of the firms mentioned in his piece is portfolio holding ArmorGroup International (ARG/LN or AMGPF/OTC).
Lynn suggests the sector could take off:
Ask anyone in the City what the highest growth sector of this decade has been and they might mumble about online gambling or biofuels or ring tones. But, in reality, it is probably security contractors. There have always been ex-soldiers for hire, and if you paid them enough, there wasn’t much you couldn’t persuade them to do for you. Now, however, the private armies that used to operate on the shady edges of the military world have turned themselves into big, mainstream businesses and plan to get a lot bigger.
Some relevant bits referencing my holding:
"On the back of Iraq, this has blossomed into a sizable industry," said Dave Seaton, the chief executive of Armor Group. Indeed so: Seaton’s company has already listed itself on Aim with a market value of more than £30 million. It had a turnover of £124 million last year, operates in more than 50 countries and has Sir Malcolm Rifkind as its chairman.
And ArmorGroup and other security firms could be a way of playing any long-term commodities boom:
Dave Seaton suggests that in 2004 the industry globally was worth about $900 million. By 2005, driven by Iraq and Afghanistan, that figure had mushroomed to $2.5 billion. And the soaring oil price has helped too. Expensive oil has meant fresh fortunes sunk into exploration, and since by some strange geological accident oil is nearly always found in very dangerous places, security firms have had plenty of work keeping all those drills and rigs protected. "Oil companies have always been willing to spend money to protect themselves," says Seaton.
The article ends with this:
The bet that substantial military contractors can be built may yet be a good one. "I don’t believe the world is getting any safer," says Seaton. With that judgment, at least, it would be hard to disagree.
I bought ArmorGroup stock in September and it's basically done nothing. As you know, I'm expecting the British private security industry to go through a lot of change over the next few years. I'm not saying these firms will be the next dotcoms. But, hey, I'd love to see Matthew Lynn's statement prove valid.
Meanwhile, with ArmorGroup yielding 5%, I'm content to wait and see what happens.
I'm reading Forsyth's novel The Dogs of War (1975) now and I think he mentions ArmorGroup ... maybe I just imagined it. I recommend the book if you haven't read it already.
Posted by: C. Maoxian | November 06, 2006 at 01:01 AM
The Dogs of War is a cracking book if you are into the mercenary thing - it predates Armorgroup though. Interesting to see Kroll pulling out of Iraq + Afghanistan. I plan to buy more Armourgroup once I have more cash - its currently tied up in Torex Retail PLC.
Posted by: Ian | November 06, 2006 at 06:09 PM
CM: Ian's right, Forsyth's novel predates ArmorGroup. Interestingly, another company mentioned in the linked Spectator article is AEGIS Defense -- and it's widely believed that Forsyth owns part of the company (it's private).
Ian: There's a lot of risk with ArmorGroup -- regulatory risk, especially. But at current prices it can be picked up right at tangible net asset value, so it's worth a shot, no pun intended! ;-)
Posted by: John | November 06, 2006 at 09:39 PM
Maybe Forsyth made up the company name (ArmorGroup) for the book and they adopted it later. ;-)
Posted by: C. Maoxian | November 07, 2006 at 03:14 AM
CM: Perhaps! I don't have my notes in front of me, but I believe what is now ArmorGroup was formed in 1981, under a different name.
Posted by: John | November 07, 2006 at 10:44 AM