26.02.2025
Just before UK Prime Minister Kier Starmer jets off to see his ‘new friend’ President Trump, he announced an increase in the UK Defence spend, from 2.3% to 2.5% of the GDP.
In my view that should have been a total 5% spend and now, not by 2027.
The income and tax generation that would be created by such a necessary hike in expenditure to protect the UK would become instantly visible and help to fill in renowned ‘black holes’ claimed by certain Ministers.
But then I have been a long-time prop for the UK Defence Supplier Sector.
We should do all that we can to help our UK manufacturers, especially in defending our borders.
So, when I see yet another company within the sector being approached by overseas bidders, I must admit that I do get slightly frustrated.
Earlier this week it was mooted that Bain Capital had approached the Chemring Group (LON:CHG) with a bid proposal, I was disappointed.
The group is an international manufacturing and technology company that supplies high-reliability products and innovative services into growing areas of Defence, Security, and Space markets.
I have been a keen supporter of the company for decades and would be against it falling into the hands of an overseas Private Equity group so that they could plunder its framework just as it was about to see a major boost in its fortunes.
The Business
Chemring Group is a UK-based company that designs, develops, and manufactures technology solutions for the defence, security, and safety industries.
For over 100 years, in over 50 countries, Chemring, which employs some 2,300 people worldwide and has production facilities in four countries, has been supplying innovative solutions to the world’s most demanding customers in the aerospace, defence and security sectors.
Its products include sensors, countermeasures, and energetic systems such as to detect and disable threats like IEDs, unexploded ordnance, and chemical and biological threats; products to protect aircraft, ships, and land platforms from guided missile threats; pyrotechnics and munitions for use in the navy, army, and air force and energetic systems components for the space sector, including propellants, explosives, missile and ammunition components, and thrusters.
Its sensors and information side covers advice, design, engineering, research and solutions. Its offer range takes in: electronic warfare; explosive ordnance disposal; chemical and biological detection; and innovation, technology and data science.
The group’s countermeasures and energetics side is the world leader in the design, development and manufacture of advanced expendable countermeasures and countermeasure suites for protecting air, sea and land platforms against the growing threat of guided missiles.
Advanced flares, special material decoys, naval countermeasures, explosive materials, aircraft safety components, pyro-mechanisms, conventional flares, chaff, space launch initiators and release mechanisms, missile and electronics, breaching and demolition, extruded double base propellants – they cover the gamut.
Today’s AGM Trading Update
The key points from today’s statement are that:
· The FY25 outlook is in line with expectations.
· Order book at 30th January was £1,351m (£991m).
· The Q1 order intake was £393m, with significant orders received across both sectors.
· The expected FY25 revenue is 81% covered by Q1 revenues and the current order book, while the outer years cover is continuing to build.
· The market opportunity for Chemring continues to grow.
· New £40m share buyback programme commenced.
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."
Consensus View
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 20.0 pence.
My View
I would certainly not be a seller of this group’s shares, now 388.50p, up 15p this morning.
If Private Equity houses continue to sniff around the group, as its order book grows and grows, investors will realise just how attractive Chemring’s shares are – I see at least a 25% increase in price.
(Profile 20.06.19 @ 177p set a Target Price of 300p*)
(Profile 20.10.23 @ 278p set a Target Price of 350p*)
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