- Record first-half order intake
- £1.3 billion order book
- Full-year guidance reiterated
Chemring (CHG) jumped more than 5% to a new 14-year high of 514p after the British defence contractor reported a record first-half order intake of £488 million, taking the order book to £1.3 billion.
Rising global defence spending amid heightened geopolitical tensions have driven investor demand for Chemring, reflected in the shares rising 55% higher year-to-date, compared with a 1% advance in the midcap FTSE 250 index.
CEO Michael Ord commented: ‘Our 2024 momentum has continued into this year with another period of record order intake and an order book of over £1.3 billion, increasing 2025 order cover to 85%.
‘With growing geopolitical uncertainty resulting in increased defence expenditure, particularly across NATO, the group is well positioned, with a strong and sustainable platform to increase revenue to £1 billion by 2030.’
Chemring is poised to benefit from the UK government’s Strategic Spending Review announced on 1 June which will see the procurement of up to 7,000 UK-built long-range weapons and £1.5 billion to build at least six munitions and energetics factories.
REVENUE BEAT
Revenue for the six months to 30 April increased by 5% to £234 million, around 3% above consensus estimates, driven by the strong performance of Countermeasures and Energetics, which saw revenue jump by 20.4%, offset by a 12% decline in Sensors and Information.
Underlying operating profit margin expanded to 11.6% compared with 11.2% in the prior first half, with group operating profit up 8% to £27.1 million, in line with analysts’ consensus estimates.
The interim dividend was increased by 4% to 2.7p per share, and the company said it had deployed just over £3 million of its £40 million share buyback announced on 26 February.
RISKS TO ESTIMATES
Despite the group’s order book increasing 42% to the highest level in Chemring’s history, the board left expectations for 2025 unchanged, noting a similar second-half weighting of operating profit to 2024.
Berenberg believes the lower-than-usual order cover in the Sensors and Information division, sitting at roughly 37% of expected second-half revenue ‘poses risk to the full-year estimates, and the degree this can be compensated for by a stronger H2 in Countermeasure and Energetics - which has circa 93% of H2 revenue under contract - will be in focus.
‘We also look out for the potential for further capacity expansion in Energetics in the UK following the publication of the UK Strategic Defence Review yesterday,’ added Berenberg.
