A collapse in profits and an assault on the dividend is normally reason enough to run for the hills, but few expected anything else from Chemring (CHG). In fact, the absence of another profit warning has sparked a wave of optimism that new blood in the boardroom will revive fortunes at the flares and countermeasures specialist.
Indeed, chairman Peter Hickson laid the blame firmly at the old guard's door. Problems with production, orders, licences and technical issues dogged the company in 2012 and underlying pre-tax profit crumbled 42 per cent to £70.1m. Profits plunged in three of the four divisions, and only a full-year contribution from Detection Systems helped the counter-IED division make more than before. The order book shrank 13 per cent to £761m, too, and the final dividend was slashed by more than a third, roughly in line with the slump in underlying earnings.
Less than three months after taking over, chief executive Mark Papworth and his new recruits, including respected finance chief Steve Bowers, have put together a recovery plan. Fixing Chemring's operational performance is a priority. That means simplifying the management structure, merging similar businesses, sharpening up its sales force and cutting costs. More detail is needed, but if all goes well we should begin to see the results next year.
Broker Investec Securities expects another drop in adjusted pre-tax profit to £64.1m in 2013, giving adjusted EPS of 25.5p (28.1p in 2012).
CHEMRING (CHG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 297p | MARKET VALUE: | £574m | |
| TOUCH: | 296-297p | 12-MONTH HIGH: | 449p | LOW: 214p |
| DIVIDEND YIELD: | 3.2% | PE RATIO: | 44 | |
| NET ASSET VALUE: | 224p | NET DEBT: | 56% | |
| Year to 31 Oct | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 354 | 57.7 | 24.6 | 7.00 |
| 2009 | 504 | 95.8 | 39.8 | 10.0 |
| 2010 | 597 | 89.1 | 37.8 | 11.8 |
| 2011 | 724 | 85.4 | 37.7 | 14.8 |
| 2012 | 740 | 18.8 | 6.80 | 9.50 |
| % change | +2 | -78 | -82 | -36 |
Ex-div: 17 Apr Payment: 10 May *Includes intangible assets of £382m, or 198p a share | ||||
