4th Jun 2024 11:38
(Alliance News) - Chemring Group PLC's medium-term prospects remain "compelling", despite short-term manufacturing issues, analysts on Tuesday said.
Chemring is a Hampshire, England-based provider of technology products and services to aerospace, defence and security markets.
Pretax profit fell 31% to GBP15.2 million in the six months that ended April 30 from GBP22.1 million a year prior.
This came despite a 8.3% increase in revenue to GBP223.4 million from GBP206.3 million a year prior. This was driven by a strong performance at Roke, up 19%, and growth in its specialist energetic materials businesses offset by a weaker period for Countermeasures.
But underlying operating profit margin dipped to 11.2% from 12.7% primarily reflecting the impact of operational challenges at the Tennessee Countermeasures business in the period.
Chemring said the first half performance was in line with the board's expectations.
Looking ahead, Chemring said it has an ambition to increase annual revenue to around GBP1 billion by 2030.
Chemring highlighted a record first-half order intake of GBP344.5 million and an order book of GBP1.04 billion, up 1.9% and 39%, respectively, from GBP338.2 million and GBP749.5 million a year prior.
Chief Executive Michael Ord commented: "The momentum seen in 2023 has continued with another period of record order intake and an order book of over GBP1 billion, the highest in Chemring's history. This strong order intake across both sectors has further increased our order cover for the second half of 2024 to 93% and the board's expectations for the full year are unchanged."
Reflecting this, the company increased the interim dividend by 13% to 2.60 pence per share from 2.3p a year prior.
Berenberg described the results as "strong".
"The demand environment has remained buoyant as evidenced by the 1.5x book-to-bill and the record-high backlog of GBP1.04 billion," the broker remarked.
This backdrop has enabled the company to unveil medium-term guidance to reach GBP1 billion of revenue by 2030, equating to a 9% organic revenue compound annual growth, Berenberg noted.
The broker thinks the shares continue to offer "good value".
"We raise our price target to 460p and reiterate our buy rating, reflecting higher peer multiples," Berenberg said.
Shore Capital analyst Jamie Murray felt the results were "reasonable", with "positive revenue growth offset by the short-term manufacturing issues", impacting operating profit.
But Murray believes the medium-term outlook, "where we see significant value, remains compelling, driven by good order intake and a record high order backlog, which has led management to upgrade outer year guidance."
Murray expects a modestly negative reaction from the market given the operational issues in the first half, but believes the long-term growth opportunity remains compelling.
Shares in Chemring were down 1.3% to 389.50 pence in London on Tuesday.
By Jeremy Cutler, Alliance News reporter
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