23rd Feb 2024 16:09
(Alliance News) - Chemring is an "underappreciated play on very strong ammunition demand", according to analysts at Berenberg, who think the underperformance of the shares year-to-date is "unmerited".
Shares in Chemring fell 3.0% to 351.50 pence in London on Friday.
The broker was commenting after Chemring issued a trading update ahead of Friday's annual general meeting.
The Hampshire, England-based provider of technology products and services to aerospace, defence and security markets, said its expectations for the financial year were unchanged.
Chief Executive Michael Ord said: "The current financial year continues broadly to plan despite severe weather impacting operations at some of our manufacturing sites".
Chemring disclosed severe winter weather conditions had led to manufacturing operations being interrupted, resulting in delays to some deliveries scheduled in the first quarter.
Delivery impacts are expected to be recovered in the second half of the year, it added.
Ord said this had increased its second half weighting.
Ord said order book momentum has been maintained with the receipt of several significant orders, "demonstrating continued customer confidence in Chemring's market leading products and services".
"The strong order intake across both sectors has further increased our order cover for [financial year 2024] to 87% and continues to build our order cover in the outer years, positioning the group well for the future," he added.
Chemring said the order book at January 30 was GBP991 million, up 52% from GBP654 million last year.
Berenberg said the update pointed to "further high order intake across the portfolio in response to buoyant end-market demand driven by rising defence budgets".
The broker acknowledged the delays to deliveries but pointed out this is not expected to affect the full-year result.
"Chemring is an underappreciated play on very strong ammunition demand and the year-to-date underperformance of the shares is unmerited," it continued.
Berenberg has a 'buy' rating on Chemring and increased its price target to 415 pence per share, reflecting higher peer multiples.
The broker noted both of the Chemring's divisions are aligned to areas of increased activity and budgets, reflecting the ramp-up of ammunition production rates in Europe and greater investment in digital and electronic capabilities, including electronic warfare.
"Chemring's ongoing capacity expansion in Energetics positions the company to capture a greater share of this budget growth, and we forecast accelerating group revenue growth over the coming years," Berenberg said.
Berenberg noted the order backlog continues to grow, rising 52% since January 30 2023.
Reflecting the impact of weather on deliveries, Berenberg expects a great weighting towards the second half for both revenue and profit.
By Jeremy Cutler, Alliance News reporter
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