Chemring, a company listed at the London Stock Exchange and one of the last defence firms in Europe, has seen a record-breaking order intake.
In its results for the half year ending April, the company stated that orders would begin to translate into profits in the second part of the year.
Chemring rose nearly 10%, or 26 1/2p to 295p. This valued the group at over £800 million. The shares have been falling since March, when a negative update highlighted delays in customers’ procurements, especially those from the US government. It also mentioned labour shortages as well as energy and wage inflation.
The company manufactures and supplies components for a wide range of military applications, including pyrotechnics (or energetics), countermeasures or decoys to intercept incoming missile attacks as well as explosives in bombs and missiles. It also provides biochemical weapons detection, cyberdefence, and energetics. The company has its headquarters in Romsey Hampshire and employs over 2,500 people across the UK, US and Norway. The UK has operations in Poole, Dorset, Salisbury, Wiltshire and along the Ayrshire coastline on the Firth of Clyde.
The company reported a 4 percent drop in revenue for the first half of 2018 to £212 millions and an operating profit of £26.6million, down by 21 per cent. It said that it expects a full-year underlying profit of £67million on revenues of £468million. The company expects to make a profit of £67 million on revenues of £468 million for the full year. In 2022, this was £64 million.
The market was pleased with the record-breaking first-half orders, which took the backlog up to £750m, the highest in ten years, and the increased interim dividend of a fifth, from 1.9p to 2.3p.
The business unit that provides mine detectors for Husky armoured vehicles was the one holding back business. Countermeasures and energetics orders rose by 113%, thanks to work on the next generation anti-tank shoulder missile launchers at the Scottish plant.
Working capital expenditures ahead of new business and capacity expansion have seen net debt increase from £18.5 to £25 millions, as well as the inflationary effects that were warned about.
Michael Ord said that the company’s chief executive, Michael Ord, has seen a surge in activity as it tries to adapt to the changing priorities of customers.
He stated that the increase in orders was due to “increased global uncertainty, competition and a renewed demand for traditional defense capabilities”.
He said that the outlook for the global defense market was increasingly positive. Strong growth is predicted in the next decade. The growing visibility of the global defence market and the desire by our customers to enter into long-term partnerships gives us confidence to continue investing for the future.
Jefferies stockbroker said that it was pleased that the first-half profit was better than expected, and that the revenue visibility for second half is higher than at this time last. It is a stock buyer with a 360p target price. Investec is another broker that believes the stock remains undervalued. It has a price target of 430p.