Chemring Group (Lon:CHG) – showing some real flare
The interims to end April for this aerospace, defence and security markets group reported a record order intake and very much stronger long-term prospects.
The order books stood at the highest level for over a decade for the group’s two main divisions.
The £100m intake for the Sensors and Information side was up 35%, while the Countermeasures and Energetics companies took in some £238m of new orders in the first half, up 113% on the previous year.
Overall, the order book stood at £749.5m, up 54%.
However, revenues were down 4% at £212.1m, while underlying pre-tax profits were 23% off at £25.6m.
CEO Michael Ord stated that:
"It has been a period of heightened activity across the Group as we adapt to changing customer spending priorities. In response to increased global uncertainty and competition, demand for both technology-driven solutions and a resurgent demand for traditional defence capabilities, has resulted in record H1 order intake and an order book at its highest level for over a decade.
The outlook for the global defence market is increasingly positive, with strong growth predicted over the next decade. This growing visibility and the increasing desire of our customers to move to long-term partnering agreements gives us the confidence to continue to invest for the future, balancing short-term performance with heightened long-term growth and value creation.
Chemring is well placed to capitalise on its many opportunities and with 90% of expected H2 revenues covered by the order book, the Board's full year expectations are unchanged."
These interim figures do not disappoint me at all. This group is a global player, and its technology is very advanced and in big demand.
Berenberg analysts are anticipating sales of £470m for the year to end October.
Pre-tax profits are estimated to be around £59.7m (£51.8m), taking earnings up to 18p (17p) and covering a 7p (6p) dividend per share.
The coming year could easily see £500m sales, £67.7m profits, 19p earnings and a dividend per share of 8p.
Already estimates for the 2025 year are for £537m revenues, £74.5m profits, 21p earnings and an 8p held dividend.
Across a consensus of analysts that follow the £828m company, the average Target Price is 381.63p, with the highest guesstimate at 440p per share.
A year ago, its shares were trading at 381p, they are now around 292p at which level I believe they offer very attractive upside potential.
(Profile 20.06.19 @177p set a Target Price of 300p*)
Severfield (LON:SFR) – very significantly undervalued
The UK’s leading construction steel specialist is looking toward further expansion in both its European and its Indian markets.
Its shares continue to be undervalued.
However, I consider that its quality will become ever more apparent when its results to end March are announced this coming Wednesday morning.
The group is the UK's market leader in the design, fabrication and construction of structural steel, with a total capacity of some 130,000 tonnes of steel per annum.
It has six sites, around 1,700 employees and expertise in large, complex projects across a broad range of sectors.
The company also has an established presence in the expanding Indian market through its joint venture partnership with JSW Steel, which is India's largest steel producer.
Analyst estimates suggest that the last year saw sales rise from £403.6m to £490.3m, while pre-tax profits increased from £27.1m to £31.1m, lifting earnings to 8.3p (7.2p) and boosting its dividend to 3.3p (3.1p) per share.
The current year to end March 2024 could see sales improve to £568m, with profits of £35.3m, earnings of 8.75p and a 3.65p dividend per share.
With a market capitalisation at £198m, this group’s shares at 61.5p are trading on a mere 7.4 price-to-earnings basis, while yielding an appealing 5.3% to boost further its attractions.
(Profile 12.09.19 @ 62p set a Target Price of 88p*)
The City Pub Group (LON:CPC) – not frothy enough yet
Last week’s AGM Trading Update, from the premium pubs group, reported that trading for the 23 weeks to 4th June had continued to be strong, with sales some 20% higher than last year.
Following the group taking a majority stake in the Mosaic Pub and Dining Group, now up to 52%, it has 52 pubs within its total estate.
Executive Chairman Clive Watson stated that:
"The strategy that we have pursued over that last couple of years is now manifesting itself in our outperformance.
We have an excellent estate of high-quality premium pubs, well invested, located well and trading strongly.
We also have a more efficient business having streamlined the operating structure to meet our existing needs.
Our estate is growing through cost-effective acquisitions and we have reached a landmark moment for the City Pub Group as we now own and operate more than 50 premium -predominantly freehold - pubs in the south of England and Wales.
City Pub Group is in good shape and we remain optimistic about the prospects of the company for the remainder of 2023 and beyond."
Analyst Anna Barnfather at Liberum Capital continues to rate the group’s shares as a Buy, looking for 115p as her price objective.
For the year to end December her estimates are for sales to rise to £64.3m (£57.8m), with pre-tax profits of £7.3m, almost doubling last year’s £3.7m. She looks for 5.6p earnings per share against 4.1p in 2022.
On the face of it the shares at 100.5p might look expensive, trading on 17.9 times current year earnings, but I consider that an extra acquisition or two will push this group into another league, taking its shares much higher in the process.
The September interims could see another Update and an upgrading of estimates.
Hold tight.
(Profile 04.07.22 @ 80.5p set a Target Price of 100p*)
(Asterisks * denote that Target Prices have been achieved since Profile publication)