Manroy begins trading on AIM

This was in the hard copy of The Daily Telegraph on the 23rd. I am considering buying a few shares.
This was in the hard copy of The Daily Telegraph on the 23rd. I am considering buying a few shares.
Be careful... AIM companies are, by their very nature, risky and the shares will be illiquid. £6m is not much in the overall scheme of things and you will pay a steep premium (20-30%) on your investment if you try to buy too quickly.

You waited five years for that.
Not only that but Manroy was taken over 2 years ago at 85p per share offer.

On 26 November 2013, the Company announced it was in very preliminary talks with each of Herstal, Beretta and U.S. Ordnance, and that these talks may or may not lead to an offer being made for the whole of the issued share capital of the Company. On 28 November 2013, the Company announced that talks with U.S. Ordnance had been terminated. Since that date, talks with Herstal have advanced significantly, leading to today's announcement of the Offer. No proposal has been received from Beretta.

As Manroy Shareholders will be aware, the Manroy Group has experienced challenging trading conditions over the last two years, and, in particular: defence budgets have been reduced in many countries around the world; there has been political and civil unrest in certain countries that the Company had previously considered as potential export markets; and lead times to obtain UK Government export licences have become unpredictable.

The year ended 30 September 2013 was a frustrating one for Manroy, following production delays linked to manufacturing challenges for Manroy's new GPMG product, deferred spend by the UK Ministry of Defence and the withdrawal of export licenses for certain countries by the UK Government in the summer of 2013, after many years of business development in those countries.

Operations at MUSA (the Company's US associated undertaking in which it had a 49 per cent. shareholding) have also suffered significantly, not only in terms of delays in achieving First Articles Acceptance approvals to enable deliveries to commence on its sizeable forward order book, but also in terms of bidding for a major defence Quick Change Barrel contract from the US Department of Defense. MUSA was hopeful of being awarded a meaningful portion of this contract, which would have placed it in a stronger financial position with increased forward orders for delivery over a number of years. Ultimately, this contract was placed as a single source contract with a major competitor. Without the financial underpinning from this expected long term business opportunity, MUSA's expected major future earnings stream was lost. A direct consequence of this has been that MUSA now has substantial short term funding requirements. In light of this, the Company has irrevocably agreed to sell its 49 per cent. investment in MUSA for a nominal value, subject only to the release of this announcement (please see paragraph 7 below for further details).

Manroy's business comprises a relatively small number of large contracts, which, whilst beneficial, make the Company's revenues lumpy and irregular. This, when coupled with the unpredictability of timing associated with the award of export licenses from the UK Government, makes accurate forward projections required in the public markets more difficult. A manifestation of this has been the requirement for the Company to issue a number of trading updates resulting, inter alia, from delays in the timing of expected contracts. In addition, whilst the Board has confidence in the future operations of the UK business and its expanding export market, it is conscious of the small size of the Company in relation to other operators in the sector and the reduced financial capability of Manroy when competing for larger export orders.

The Board of Manroy considers that, as part of the Herstal Group, Manroy will be able to operate more effectively than is the case at present as a stand-alone small company quoted on AiM. Manroy will also benefit from being part of a substantially larger defence company when bidding for new contracts and servicing existing and new customers. Expansion capital has not to date been readily available to Manroy from the London capital markets, thus restricting its planned expansion programme, and increasing its financing facilities is not considered by the Board to be either appropriate or achievable on acceptable terms. The Company's main finance provider, Barclays Bank plc, while being generally supportive, is seeking to reduce its facilities to the Manroy Group.

The Board is conscious of the interests of Shareholders and a desire for performance to be reflected in the Company's share price. Over the last two years the Company's share price has not performed as well as the Board had expected. Following the announcements in November 2013 referred to above, the Board has considered a number of alternative proposals for the Company but believes that the Offer by Herstal is materially better than any other alternatives at the present time.

In addition, the Offer of 85 pence per Manroy Share in cash will enable Shareholders to exit their investment at a 51.8 per cent. premium to the Closing Price of 56 pence per Manroy Share on 25 November 2013 (being the last Business Day prior to the commencement of the Offer Period) and also at a meaningful premium to the Closing Price of 75 pence per Manroy Share on the Business Day immediately prior to this announcement.


I suspect that should they be swallowed whole by Herstal then the local components subcontractors (of which I know a few) will be dropped in favour of parent groups suppliers!

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