Chemring Group – if Bain Capital makes another bid approach, then strong countermeasures will be necessary, I look for 500p a share at least

17.03.2025

Just over a month ago Chemring Group (LON:CHG), one of my favourite companies within the defence sector, saw its shares down to just 305p.

Last Friday night they closed at 411.50p, up 15.50p on the day, on the back of a hefty 2.67m shares traded.

That values the group at around £1.11bn – which I believe to be a cheap valuation, especially considering that it is now in a possible bidder’s sights.

The group specialises in the manufacture of high-technology products and the provision of services to the aerospace, defence and security markets.

Bain Capital, the US Private Equity group, is believed to have recently approached the group with a 390p a share offer, but was said to have been rebuffed.

The Business

The group, which employs some 2,700 people worldwide, simply describes its operations as being a specialist manufacturing and technology business creating market-leading innovative solutions to meet its customers’ complex needs.

Using its extensive science and engineering expertise, it turns ideas into reality, designing and developing critical solutions that protect and safeguard in unpredictable environments in today’s increasingly unstable world.

It achieves that by innovating at every stage of the value chain, from research and development through to design, manufacture and in-service support, working closely with its customers to deliver products, services and solutions for mission-critical success.

And this is what really appeals to me – its customer base, being supported in more than fifty countries across the globe, spans national defence organisations, security and law enforcement agencies, as well as commercial markets such as space and transport.

Its Operations

Its geographic Sales Breakdown for 2024 showed UK £229m, US £173m. Europe £86m, Asia Pacific £16.7m and the Rest of the World £5.9m.

Broadly its activities can be split under two main sectors – namely Countermeasures and Energetics (£298m sales in 2024), and Sensors and Information (£212m).

Its fields of service take in – operational mission cyber support services; active cyber defence; open-source intelligence; land electronic warfare systems; special bio-security and bio-surveillance sensors; air and naval countermeasures; specialised energetic materials; and precision-engineered devices.

Countermeasures & Energetics

Chemring is the world leader in the design, development and manufacture of advanced expendable countermeasures for protecting air and sea platforms against the growing threat of guided missiles.

Its niche, world-class energetics portfolio provides high-reliability, single-use devices that perform critical functions for the space, aerospace, defence and industrial markets.

It is critical supplier of specialist materials including propellant and energetic materials that are used in a wide variety of applications in the defence and civil markets.

Sensors & Information

The Sensors & Information sector, including Chemring’s Roke business, continues to invest in technologies that safeguard and protect in an uncertain world, enabling clients to deliver competitive advantage, defend their people, assets and information, and defeat their adversaries.

AGM Trading Update

On Wednesday 26th February, the group issued a Trading Update stating that it was in line with market expectations.

Its Order Book as at the end of January this year was standing at a massive £1.35bn, which is a considerable increase on the 30th January 2024 figure of £991m.

The group reported that in its first quarter of the current year its order intake was a significant £393m and spread across both of its main sectors of operation.

CEO Michael Ord stated that:

“The current financial year continues to plan and our outlook remains in line with market expectations.

Our order book is at a record level and order intake across both sectors benefitted from the receipt of several significant orders, demonstrating continued customer demand and confidence in Chemring’s market-leading products and services.

The Group is increasingly well-positioned, with a strong and sustainable platform for future growth.

Given the Board’s growing confidence in the long-term potential of the Group it has decided to commence a new share buyback.”

The company declared that with the new administration in the US pushing for significant increases in NATO defence spending and with EU member states recognising the critical need to scale up and co-ordinate defence production across Europe, the market opportunity for Chemring continues to grow.

That presents significant opportunity for its products and services, reinforcing the decision to invest, supported by our customers, in increasing capacity and capability to meet sustained long term market demand.

Strategic Aims

Chemring’s strategic imperatives are threefold –

·                To grow, through the investment in capacity, technology and people to drive organic growth,

·                To accelerate, through the investment in value-enhancing bolt-on acquisitions to accelerate growth, and

·                To protect, by investing to protect sole-sources and marketing leading positions.

This all supports the group’s ultimate strategic ambition to increase its annual revenue to c.£1bn by 2030 whilst balancing near-term performance with longer-term growth and value creation.

Broker’s Views

The group believes the current consensus of analyst forecasts for FY25 are for:

• revenue of £540m,

  
  

• underlying operating profit of £75.9m, and

  
  

• underlying EPS of 20.0p.

  
  

My View

Impressively, the group continues to assess further new capacity expansion opportunities together with associated customer funding, alongside bolt-on acquisition opportunities.

It has declared that it remains on track to achieve its ambition of increasing annual revenue to £1bn by 2030, while generating mid-teen margins in the medium term.

Between now and the group’s Interim end-April results on 3rdJune 2025, I see the shares, now 415p edging higher, especially if Bain returns.

(Profile 20.06.19 @ 177p set a Target Price of 300p*)

(Profile 20.10.23 @ 278p set a Target Price of 350p*)