- Firm sets bold 2030 aim
- Order book tops £1 billion
- Defence spending booming
Aerospace and defence firm Chemring (CHG) set itself the target of reaching £1 billion of revenue in 2030 while posting a strong set of first-half results and a record-high order backlog.
However, the shares, which recently touched a 10-year high, traded sideways at 392p as the market succumbed to nervousness over interest rate cuts.
STRONG TAILWINDS
The FTSE 250 firm operates through two divisions, sensors and information, which delivered £106 million of revenue in the first half, up 15% on last year, and countermeasures and energetics, which delivered £118 million of revenue, up just 3% on last year.
In sensors and information, the big driver was Roke, which specialises in cyber defence, EW (electronic warfare), information processing and AI (artificial intelligence) and is seeing strong demand as global tensions rise and more countries look to defend themselves against established and emerging threats.
In countermeasures and energetics it was the latter business, which makes propellants, explosives and other specialist materials, which drove sales as defence customers ‘re-evaluated their operational usage’ and started to stockpile.
The firm also saw an uptick in demand for precision-engineered devices for space and missile use including initiators for the Blue Origin spacecraft and for Boeing’s (BA:NYSE) Harpoon programme.
In total, orders reached £345 million in the first half taking the total order book to £1.04 billion, the highest in the company’s history and providing greater visibility over future revenue and earnings.
£1 BILLION TARGET
The market backdrop for defence companies is looking increasingly robust as countries wake up to the increased threat level, whether that is from traditional sources or from new sources such as cyber and electronic warfare.
‘The increase in geo-political tensions around the world is driving a fundamental rearmament upcycle which is expected to last for at least the next decade’, said chief executive Michael Ord.
‘This visibility, together with the support of grant funding and our customers’ desire to move to long-term partnering agreements, gives us the confidence to invest further in capacity and capability, reinforcing Chemring’s position as a key supplier to NATO, and positioning the group well for the future. We now have the ambition to increase annual revenue to circa £1 billion by 2030.’
Part of this growth in revenue will be generated through increased capital spending, with investment in energetics capacity raised from £120 million to £200 million although the net cash outlay for Chemring falls to £110 million after taking into account £90 million of grant award funding.
The company expects this investment to result in £100 million of incremental revenue and £30 million of incremental operating profit in 2028.
EXPERT VIEWS
Analysts at Berenberg pointed to the chief executive’s comment about defence being in a decade-long upcycle and the fact the company’s new revenue target equates to around 9% compound annual revenue growth through to 2030.
Given the higher multiples for its peers in the defence sector, the team raised their price target on the shares to 460p and reiterated their Buy rating saying the stock offers ‘good value’.
Edison Group director of content and strategy Neil Shah described the interim results as ‘promising’, adding the group’s ambition to increase its annual revenue to around £1 billion was ‘optimistic but achievable given geopolitical tensions are expected to continue and the company’s unique position in a sector with a difficult entry point’.
