The story of three war legends and a wanted man

Today’s Penny Sleuth begins with three legends of World War II. First off we have Douglas Bader, famous not only for his exploits as a fighter pilot, but for the fact that he did so despite having lost both legs in a crash in 1931. Johnnie Johnson and Norman Angel were two other flying aces who between them shot down so many Messerschmitts and Focke-Wulfs that they virtually kept German aircraft makers in business.

Fast forward to the 1970s, when Roy Swainbank and his wife Madeleine started to make guns for the Ministry of Defence.

And then, come right up to the present day with a man called Guy Savage. He’s hit the headlines because the US government is attempting to extradite him from the UK and bring him back to the USA to face a charge of weapons smuggling.

So, what do all these characters have to do with a penny share company?

A disappointing early run on AIM

Well, these chaps have all played a part in the history of one penny share company called Manroy (AIM: MAN), now the UK’s only manufacturer of heavy machine guns. I met Glyn Bottomley – the final member of our cast, and Manroy’s chief executive – last week. He had the bemused look of a man who does not understand the ways of the City. Since coming onto AIM at the end of 2010 at a price of 75p, the shares have sunk to 49p and Bottomley, who owns 11% of them, thinks they should be worth more.

Let me fill in the backstory of this unusual business. Our three fighter pilots – Douglas Bader, Johnny Johnson and Norman Angel – were all involved in the foundation in the 1960s of AEI Systems, a defence equipment firm based at Ascot.

Bottomley ultimately took control of the business and in 2008, he also took over the Rye gun-making business whose name, Manroy, was derived from the Christian names of Roy and Madeleine Swainbank. This enterprising couple had prospered in first the Falklands and then the Gulf War but they were running a small operation almost single handed and were reluctant to take the business up to the next level.

Domestic supplier and a foothold in the US

Then we come to Guy Savage. He had a business in Nashville, Tennessee, called Sabre Defence Industries, which was “federally licensed to manufacture, distribute, and import firearms and firearms components for military, law enforcement and civilian use worldwide”. Manroy knew of this business because it had launched its own US operation in 2009. When the US authorities withdrew Sabre’s licence, its $10.7m worth of assets were put up for sale.

In March 2011, Manroy fought off competition from the US firearms maker Colt Industries to buy Sabre’s assets for $6m, and then transferred them along with its existing US business into a new facility in Spindale, North Carolina. That looks like it was a smart move, because it gives Manroy economies of scale and favourable tax treatment for locating in a deprived area.

Today, Manroy’s product range features machine guns, armoured turrets, weapon tripods and mounting systems, ammunition, and a quick-change barrel kit. Bottomley explained to me that when machine guns are firing bullets at a rate of 1,500 a minute, the barrel understandably gets hot. Previously they were cooled by water but this added weight. So Manroy has come up with a second barrel that can quickly be fitted to replace the overheating barrel and give it time to cool down.

As one of the few domestic suppliers to the UK Ministry of Defence, and with a foothold in the USA, Manroy should be well placed. The credibility bestowed by MoD contracts has allowed Manroy to sell into 30 countries overseas, while the USA spends more on defence than the next 14 countries combined.

And yet the shares have disappointed.

Can this interesting share pull off £14m revenue?

For this, Bottomley blames delayed confirmation of an important export order, and more importantly the time taken for the US Department of Defense to approve the transfer of contracts originally awarded to Sabre. As ever this type of business is ‘lumpy’, relying on one-off contracts that can be subject to delay.

But Bottomley seems confident that Manroy can achieve the forecasts of broker Allenby Capital, which is predicting revenue of £14m and earnings per share of 7.7p for the year to this September.

• This article is taken from Tom Bulford’s free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.

Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.

11 Responses

  1. 08/02/2013, Nick Fury wrote

    Yep, good tip Tom, I want to get in to as much ‘blood money’ as I can. What’s the matter with you! if the politicians aren’t going to behave with any moral codes then we should try to. Make money somewhere else for goodness sake, think about what these ‘products’ do! if you are happy making 10% while leaving children without fathers and families without children then go ahead. I suppose all the investers are secretly hoping for another world war….they’d be quids in. I didn’t thing you would be able to top your insultingly titled story ‘a milestone for fatties’ but congratulations you’ve eclipsed yourself with this one.

  2. 08/02/2013, NickB wrote

    Nick Fury…This email/magazine is about maximising one’s assets. If you do not like whats being written just press the delete button and move on to something that does not hurt your feelings…grow up.

  3. 08/02/2013, Nick Fury wrote

    NickB…tell this to your God when you have to stand before him…or if you have no Gods then tell your children you helped finance wholesale death….as for growing-up, if condoning death and war is being an adult then, I’m happy to stay a child!

  4. 08/02/2013, 4caster wrote

    I have a conscience, and do not want to maximise my assets at the expense of the lives of innocent people. I detest arms smuggling. It is most unlikely that Manroy is engaged in that, now that Guy Savage has left the company and is on the run from American justice.
    But as long as civilised societies need to defend themselves against tyrants, we shall need soldiers with guns.
    What did Jesus tell the soldiers who asked “What should we do to show true change?”? He didn’t tell them to give up soldiering. He answered, “Do not extort money from anyone by threats or by false accusation, and be content with your wages.” (Luke 3:14)

  5. 09/02/2013, Monkeyinsingapore wrote

    Nick Fury: You are a moron! Read another magazine

  6. 09/02/2013, Nick T wrote

    Monkey in Singapore: Care to elucidate? I feel it is you that’s a moron!
    Nick B: Quite right old chap it is only maximising your assets that matters. I do hope you get the chance to “grow up” before one of your assets turns on you.

  7. 09/02/2013, Sunny wrote

    Yup – lets hope the mad Americans start another illegal war so we can all profit from this morally dubious investment advice. Love making money from trading shares , but I avoid anything which is based on increasing misery and slaughtering people. I don’t want to be involved in any company which manufactures machine guns which fires bullets at 1500 per minute. It just helps me sleep at night! I’m looking for win win win trades, not ones built on misery and slaughter. Judging my Tom’s record with FDI, AVM, it will probably plummet in price anyway! BTW QQ looks an excellent buy technically, but for the same reasons I have given that the bird too! Just because I’m a trader/ investor doesn’t mean I have to leave my morality behind.

  8. 10/02/2013, Nick S-S wrote

    So you think quick change barrels are new!! Cobblers! I was always vaguely interested to see what would happen if one fell off – they never did, at least not to my knowledge. If Colt backed of from the purchase at a certain price, I think that tell you all you need to know………interchangeable barrels, been around for years, fine weapon the GPMG!!

  9. 10/02/2013, C H Ingoldby wrote

    Odd how some people think appear to think that we would be better off without the Armed Forces to protect us.

    The world is full of the naive and stupid.

  10. 21/02/2013, NickB wrote

    Yup, plenty of naive and stupid on here.

  11. 30/05/2013, Dr. Porksword wrote

    This is pretty interesting stuff, the chap at the centre of the smuggling allegation. Had all the export licenses in place, some of the public statements made about him seem to be incorrect. Plus it would appear that some of the people who’ve admitted their wrong doing, would like and I can’t blame them to pass the guilt to another person to reduce their involvement in this matter. While I can see the morality issues about the type of business, nobody seems too concerned about the truth as they’re all keen to profit before justice. Seems to me that lots of people wanted to make a quick buck…? While the poor dude who’s name was above the door is getting a raw deal from it. As for interchangeable barrels all you need to do is read the account of the germans versus the russians in WW11….

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