Chemring Group shoots to seven-year high after strong results

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Chemring Group PLC (LON:CHG) shares flew higher on Tuesday as the aerospace and defence company lifted its dividend and cut net debt after performing better than expected in the year to October 31, 2020.


Revenues of GBP402.5mln were up 20% on the previous year, mostly from growth in the FTSE 250 group’s Countermeasures & Energetics arm.


New countermeasures business was secured in the UK, US and Australia, and more sensors orders were received for the next phase of Husky Mounted Detection System (HMDS) delivery plus a contract awarded for the Enhanced Maritime Biological Detection (EMBD) programme.


Underlying profit before tax of GBP51.7mln was up 31% on the previous year and with strong operational cash generation, net debt was reduced by over a third to GBP48.2mln.


The dividend was lifted 8% to 3.9p per share.


In the results statement, Chemring chief executive Michael Ord said: “Trading since the start of the current financial year has been in line with expectations. With 78% of 2021 expected revenue covered by the order book, the board’s expectations for 2021 performance remain unchanged.”


The shares shot up 17% to a seven-year high of 316p in early trading on Tuesday.


Broker Peel Hunt said the numbers were ahead of expectations and the outlook is “well covered” by orders leading analysts to anticipate upgrades.


“Management has made a lot of headway tidying the business up over the last couple of years – for example, we note this is the second year running with no exceptional charges and operating cash conversion (of EBITDA) above 100%”, they added.


“We think that with the good growth potential from both Roke and Sensors & Information sitting over the solid long-term outlook for Countermeasures, the shares are looking increasing attractive on less than 20x FY22E (prior to any upgrades).”

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